FAQs

In this section you will find answers to frequently asked questions on life, health, travel and home insurance, savings, loans, mortgages and personal finance.

Life Insurance (39)

Life insurance (or life assurance) is a contract between an individual (policy owner) and the insurer, where the insurer agrees to pay the beneficiary a sum of money (generally referred to as Sum Assured) upon the death of the individual. In return for this obligation on part of the insurer, the policy owner agrees to pay a stipulated amount as premiums over regular intervals or as a lump-sum amount.

Most contracts have specific exclusions that are included as terms of the contract so as to limit the liability of the insurer.

Simply put, when an individual buys a life insurance policy:
• he is referred to as policy owner / policyholder
• he agrees to pay a certain amount of money (premiums) to the insurer for a certain period of time
• the insurer agrees to pay a certain lump-sum amount to a person nominated by the policy owner upon the death of the policy owner
• in some forms of life insurance products, the insurer also agrees to pay a lump-sum amount on the completion of the term of the policy upon the non-occurrence of the insured event i.e. on the survival of the policy owner

Life Insurance contracts, therefore, can broadly be classified as being:
1. Protection oriented policies: One of the most basic forms of life insurance, these products are primarily designed to cover the life of the insured and provide for a lump-sum benefit on the occurrence of death but do not pay any survival benefits i.e. no payments are made if the policyholder survives the term of the insurance contract.

2. Investment / Savings oriented policies: These products, while providing for life insurance, primarily facilitate the growth of capital on premiums paid by the policy owner. These product, therefore have an associated survival benefit i.e. if the policyholder survives the term of the policy, then a payment is made to the policy owner at the end of the policy term. This payment is usually equal to or more than the sum total of premiums paid by the policy owner to the insurer but may not always be so.

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Life insurance provides an individual with means to mitigate risks associated with occurrence of adverse events such as death, critical and /or terminal illness. An individual can choose to provide financial security to self and/or his dependents such that there is a benefit provided by the insurer in case of such events in return for premiums paid by the policy owner.

One of the key reasons why one should consider life insurance is to provide financial support and a means to replace lost income for your dependents and family in the event of your death, especially if you are the primary earner for the family. Life insurance can thus be used, amongst other things, to ensure:

• that your family can continue to lead their lives with a lifestyle they are accustomed to;
• your debts are paid off without adding an additional financial burden on your dependents
• key events and requirements of your family such as children’s education and marriage are provided for

While there can be no replacement for the loss of a loved one, with the right life insurance product you can atleast minimise the financial hardships and strife that your family may be exposed to.

Having provided for adequate financial protection for the family, one should also consider savings oriented life insurance products to augment his savings pool with a view to have a disciplined approach to long term savings to meet various life stage requirements.

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The amount that can be considered as an adequate insurance will differ for each individual but the guiding principles are pretty much the same for all.

The key reasons why one should consider life insurance are:

• To provide financial support and a means to replace lost income for your dependents and family in the event of your death, especially if you are the primary earner for the family.
• To ensure that your liabilities, if any, are met without imposing an additional financial burden on your dependents.
• To provide for key events and requirements of your loved ones like a Child’s marriage or education.

The adequacy of your life insurance cover should taken into account which of the above needs you are trying to provide for and the amount of insurance that will be appropriate for each need. While some may recommend the use of ‘rules of thumb’ such as 10-15 times of your annual income being the insurance cover that you should consider, such rules may not be suitable under all circumstances and should be used with care. The best way to determine your insurance needs to determine the financial requirements of your dependents for each of the above mentioned needs.

(Please see My Life Insurance calculator to help you determine your insurance need)

Needless to say, the risk cover that you need will be reduced to the extent of any savings / assets that you may already have to offset some of the liabilities you are trying to provide for.

Having decided the amount of insurance that you want, however, is just the first albeit important step. One then needs to figure which product to buy. Here is where one should try and obtain independent, unbiased and factual information about best products from leading insurance companies in India to determine which ones suit your requirements at the lowest cost.

While there can be no replacement for the loss of a loved one, with the right life insurance product you can at least minimise the financial hardships and strife that your family may be exposed to.

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Life insurance products can broadly be categorised as being:

1. Protection oriented policies: These products are primarily designed to cover the life of the insured and provide for a lump-sum benefit in case the life insured dies. Such products are generally referred to as ‘Term’ plans. Some key characteristics of ‘Term’ plans can be summarised as:
• Lump-sum benefit paid to designated beneficiaries only in the event of the policyholder’s death
• The lump-sum to be paid on policyholder’s death is significantly higher than what would be payable under a savings oriented plan for the same amount of premium BUT No survival benefits are available i.e. no payments are made by the insurer if the policyholder is alive when the policy completes its term
• If the policyholder stops paying the premiums when due at any time during the term of the policy, the policy ceases to have any value

2. Investment / Savings oriented policies: These products, while providing for life insurance, primarily facilitate the growth of capital on premiums paid by the policy owner. Some key characteristics of these plans can be summarised as:
• These products are primarily savings plans with attached life insurance
• Part of the premiums paid by the policyholder are treated as savings while the remaining amount is used to buy life insurance
• The policy will pay a lump-sum in case the policyholder dies during the term of the policy or will pay out the amounts saved if the policyholder is alive when the policy expires
• The lump-sum to be paid on death of the policyholder is significantly less than what would be available under a ‘Term’ plan for the same amount of premium. This is because a large part of the premium is being treated as savings and only a portion being utilised to buy life insurance

Investments / Savings oriented products can further be classified as being

o Unit Linked Insurance Plans
o Traditional Plans

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A joint life policy can be either a term insurance or an endowment / ULIP policy.

A joint life policy essentially provides for coverage for two life’s, typically a person and his/her spouse, where the policy benefits are payable on the first death of one of the two joint life assured.

On survival, the maturity benefits are paid jointly in the names of both life assured.

A joint life policy makes sense when both spouses are dependent on each other and a similar risk cover is required on both to ensure that the family’s financial security is maintained in the event of the unfortunate death of any of the two. In such a case, a joint life policy that makes the benefit payments on the death of any one of the two may turn out to be cheaper than taking two similar and separate life insurance policies.

However, the policy will pay out on the death of the first life assured. In the event of death of both joint life assured, the nominees or next of kin would be paid the benefits only on the first death or of a single sum assured and not twice.
Some policies will offer an Accidental Death Benefit Rider that will cover both Life Assured in the event of death by accident.

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The insurance type that best meets your requirements is largely dependent on the need you are trying to fulfil. If securing your family’s financial future is the primary need, then you should actively consider a ‘Term’ plan. From a level of importance perspective, this need is the one that you should make sure is taken care of at the earliest. If however, there is already adequate financial protection available for your dependents and your primary need is long term savings for capital appreciation and / or conservation, available options under savings oriented plans should be considered.

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How much you pay for a life insurance policy is primarily dependent on the following:
• Your age at the time of purchasing the policy. Typically premiums or the cost of insurance increases with the age of the individual at the time of purchasing the policy
• Your health condition and family history at the time of purchasing the policy. Life insurance companies evaluate your medical history and current health status through medical questionnaires and / or medical examinations that help determine the associated risk to your health and life. If the evaluation indicates a higher degree or existing or potential risk, then the premiums could be higher.
• Premiums could also depend on your lifestyle and occupation which could again indicate an underlying degree of risk associated with your life. For e.g. insurance companies may charge a higher premium for people who actively participate in Skydiving activities.

Different insurance companies have different methodologies to price risk taking into account the above parameters and not surprisingly one would invariably find a wide range of products available with a wide range of premiums. Click here to compare best life insurance products from leading life insurance companies in India across various life stage needs.

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One of the key factors to keep in mind when buying life insurance is tax. Although insurance should not be bought to save tax, the tax savings provided under various sections of the Indian Income Tax Act, make buying insurance “cheaper” as well as an efficient investment for long term savings.

Tax Benefits for Life Insurance:
On Premiums: Section 80C of the Income Tax Act is an effective way for the salaried person to reduce tax liability. Under this section, investments made in the specified instruments are subject to rebate. Currently, the amount available for rebate under section 80C is Rs. 150,000 which can be invested in life insurance premiums, pension superannuation fund, employee provident fund, equity linked mutual fund schemes (ELSS), National Savings Certificates and public provident fund (maximum Rs 100,000). The amount invested in these instruments is eligible for rebate through deduction of the amount from gross taxable income.

The benefits available on eligible categories of investments are as follows:
1. Life Insurance Premium: paid by an individual in respect of
a) himself/herself,
b) his/her spouse, and
c) any of his/her children.
Premium amount paid should not exceed 20% of the sum assured.

2. Pension Plans: Payment made by the individual in respect of a non-commutable deferred annuity (Pension Plan) on the life of:
a) the individual himself,
b) his/her spouse, and
c) any of his children

Note u/s 80CCD(1) Contribution to National Pension Scheme is available for deduction subject to the overall ceiling and maximum10% of salary.

3. Government Employee – deduction for Pension: Sum deducted in accordance with the terms of services from the salary payable by or on behalf of the Government for the purpose of securing a deferred annuity or making provision for his spouse or children.
The sum deducted should not exceed 1/5th of the salary.

4. Provident Fund: Contribution by the employee towards a statutory provident fund or recognized provident fund. Available only to an Individual.

5. Public Provident Fund: Contribution to a public provident fund by an individual or HUF. The contribution may be made to an account standing in the name of:
a) the person himself
b) his/her spouse, or
c) any of his children.

6. Superannuation Fund: Contribution by an employee to an approved superannuation fund

7. National Savings Scheme: Contribution by an Individual or HUF

8. National Savings Certificates: Contribution by an individual or HUF. Any interest accrued on these certificates which is deemed to be reinvested also qualifies for deduction.

9. Annuity Plans: Payment made by an individual or HUF for a notified annuity plan issued by an Insurer.

10. Equity Linked Savings Scheme: Subscription, by an individual or HUF to units of an Equity Linked Savings Scheme notified under section 10 (23D)

11. National Housing Bank: Subscription by an individual or HUF to a deposit scheme or contribution to any pension fund set up by the National Housing Bank.

12. Long term Deposits: Term deposit for a period of at least 5 years with a scheduled bank.

Premiums paid for Health Related Riders: Some of the critical illness, hospitalisation cash and other health related riders attached to a Life Insurance policy may also be eligible for rebate under section 80D of the Insurance Act.

Section 80D provides for deduction in respect of health or medical insurance premium. This deduction is available to both Individuals & HUF. Rs.25,000 is the maximum amount deductible during the year for an individual and Rs 30,000 for a Senior Citizen.

Deduction under section 80D is available for an Individual for insurance premium paid for self, spouse, dependent parents or dependent children. In the case of HUF, deduction is available for premium paid for any member of the HUF.

However, the condition for applicability of deduction is that the premium must be paid by cheque in the previous year out of the income chargeable to tax.

Death Claims and Maturity Benefits: Life Insurance Policies are currently under an EEE regime i.e. that the Premiums Paid, Income earned by the Investments, and payment of Maturity proceeds or claim are all exempt “E” from tax.

Payment by an Insurer on maturity and death claim are exempt from Tax for all eligible Life Insurance policies under section 10(10)(d) of the Income Tax Act. The only policies that are not eligible for exemption on payment on maturity or claim are Single Premium Policies or Policies where the sum assured was less than 5 times the Premium paid.

Pension Plans operate under an EET regime i.e. the Premiums paid for Pension Plans and the income earned by the Investment are exempt from Tax. Pension Plans have three components – a life insurance, a Pension endowment and a Pension annuity. As other Life Insurance Plans, Death benefits paid under a life insurance rider of the Pension Plan are exempt from Tax. A Pension endowment is limited to 1/3rd of the total accumulated amount, and is exempt from tax on maturity. A Pension annuity is clubbed with the individuals other income and is taxable at the normal rates of tax applicable.

However, please note that the provisions of the Income Tax Act given above are applicable for the Financial Year 2017-18; and that these tax provisions change from time to time.

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Terms insurance policies are ‘protection oriented policies’ that provide a risk cover on the life of the insured. These policies do not accumulate any cash value, but provide life insurance for a specified period of time for a set amount of premium. There are no survival benefits associated with a Term insurance policy. In other words, the insured amount associated with a Term insurance policy is paid out to the nominees only in the event of policyholder’s death but nothing is payable to the policyholder if he survives the duration of the policy.
Since these policies cover only the risk element and provide no savings or wealth accumulation benefits, Term plans are amongst the cheapest form of insurance and should be actively considered to provide adequate financial protection to your family when you are not around.

It is advisable that when choosing how much insurance or risk cover to purchase, one should ensure that one’s needs for financial protection are adequately met. Please click here to see how to decide the right insurance amount for yourself.
Some of the variants of Terms plans that are available in the market are Level Term Plan, Mortgage Term Plan and Term Return of Premium Plan

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Level term plans are the most common variant in which the premium you pay is fixed for the entire term (duration) of the policy.

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As the name suggests, this insurance policy provides a risk cover to people who have mortgaged their property in the unfortunate event of death prior to the loan being repaid. The sum assured is usually the same as the policy holder’s mortgage amount against his property but in some of the more popular variants the Sum Assured reduces as the principal amount of loan gets repaid.

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This variant of term plans offers a survival benefit in the form of premiums paid by the policyholder during the term of the policy being returned at the end of the policy term. While this feature may seem attractive, one needs to bear in mind that by virtue of having this feature these plans are more expensive than Term plans and may not be as beneficial as taking a stand alone Term plan together with investing the amount you would save on the reduced premiums.

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• One of the key reasons why one should consider Term insurance is to provide financial support and a means to replace lost income for one’s dependents and family in the event of death, especially if you are the primary earner for the family.
• At the same time, it can also be used to ensure that your liabilities, if any, are met without imposing an additional financial burden on your dependents if and when you are not around.
• In addition to this you could use it as a tool to provide for financial needs related to key events and requirements of your loved ones like a Child’s marriage or education.
• While there can be no replacement for the loss of a loved one, with the right life insurance product you can at least minimise the financial hardships and strife that your family may be exposed to.
• The lack of survival benefits should not be a deterrent in buying this product since the benefits and financial protection being secured for your family far outweigh the minimal cost of this protection.

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• Term Insurance is a ‘must-have’ if you have a family that is financially dependent on you and if you are the primary source of income for your family. There’s never really a good time to die, but dying during one’s earning years is particularly burdensome to those who depend on us for income and support. Not having you around in such a scenario can impose a significant financial burden on your loved ones especially if you have outstanding liabilities as well such as Home Loans, Car Loans etc.
• It may not be as important a product to have if you are single with no financial dependents and limited or no liabilities.
• It is always better to start your coverage at an earlier age. With age, the associated risk to our life only increases, consequently making insurance more expensive with age.
• If securing your family’s financial future is a primary need, then you should actively consider a Term Insurance plan. If however, there is already adequate financial protection available for your dependents you may want to look at enhancing your long term savings and investments portfolio.

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The amount that can be considered as an adequate insurance will differ for each individual but the guiding principles are pretty much the same for all. As discussed above, the key reasons for why one should consider Term Insurance are:

  • to provide financial support and a means to replace lost income for your dependents and family in the event of your death, especially if you are the primary earner for the family.
  • to ensure that your liabilities, if any, are met without imposing an additional financial burden on your dependents.
  • to provide for key events and requirements of your loved ones like a Child’s marriage or education.

The adequacy of your life insurance cover should be a derivation of which of the above needs are you trying to provide for and what are the associated amounts that will be appropriate for each such need.

While some may recommend the use of ‘rules of thumb’ such as 10-15 times of your annual income being the insurance cover that you should consider, such rules may not be suitable under all circumstances and should be used with care. The best way to determine your insurance needs to determine the financial requirements of your dependents for each of the above mentioned needs.

Needless to say, the risk cover that you need will be reduced to the extent of any savings / assets that you may already have to offset some of the liabilities you are trying to provide for.

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• Term Return of Premium (TRoP) plans is a variant of Term Insurance that not only offer financial protection but also return your premium in case you survive the term of the policy. While this feature of ‘return of premiums’ may seem attractive, one should bear in mind that this makes the product more expensive than pure Term Insurance Plans (without any return of premium) and depending on the premium being charged may or may not really be beneficial.
• Take an example of a 35 year old male taking an insurance cover of Rs. 20,00,000 for a term of 20 years. Let us assume his premium for a Term Insurance plan is Rs. 6,000 and for a TRoP plan is Rs. 17,000 (an example that is fairly close to two such products available in the market today).
• In both cases, the risk cover on his life is the same i.e. Rs. 20,00,000 (the amount that would be paid to his dependents in the case of his death). However, if he buys the Term plan, he ends up paying Rs. 6,000 every year for 20 years with no survival benefits while in case of TRoP he pays a higher Rs. 17,000 every year but gets back Rs. 3,40,000 at the end of the 20 year period (17,000 times 20).
• Since there is an additional Rs. 11,000 (17,000 minus 6,000) that is being paid every year when choosing a TRoP, this choice can only make sense if one cannot deploy this additional amount elsewhere to earn more than Rs. 3,40,000 in 20 years. Rs. 11,000 invested at a minimal rate of 4.5% can fetch an amount greater than Rs. 3,40,000 in 20 years time.
• One needs to make sure that the opportunity loss on the extra premium under TRoP is not higher than what will come back as return of premium.
• When choosing between the two, consider various alternate investment options available for the extra amount you are paying for a TRoP. If these options give a return that is lower than what you would get through the ‘return of premiums’, do consider TRoP but if not, then Term Insurance plans should be the preferred option.

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Unit linked plans are life insurance plans that combine protection with investments. Although insurance plans that provide investments & savings have long been popular, both for financial planning and tax savings reasons (see Tax Benefits on Life Insurance), Unit Linked Plans are different from the traditional endowment plans. Traditional endowments are restricted in their investments by the Insurance Act to invest predominantly in government and debt instruments. Traditional Endowments have been criticised due to the lack of transparency and lower investment returns.

Unit Linked Plans, or ULIPs, combine protection with investments which are similar in structure to mutual funds. On the death of the life insured, the ULIP plan will provide for the payment of the higher of the sum assured or the fund value of the policy, to the policyholders nominees or next of kin. In the event of maturity of the policy, the ULIP plan will return the fund value to the policyholder.

Like mutual funds, Unit Linked Funds are free to set their own asset allocation and available across the risk-return spectrum including debt funds, balanced, equity funds and index funds. A policy holder thus has far greater control over where his premiums are invested.

A ULIP Plan will provide a policyholder with one or more choices of funds to invest in. The plan will charge a premium towards protection and allocate the balance of the premium paid towards investment by buying units of the fund chosen by the policy holder. These units will be bought at the NAV of the chosen fund; and the value of the policy (the fund value) will be derived by multiplying the number of units accumulated by the current NAV.

ULIP plans offer a far greater degree of transparency to customers on charges, investment allocation and investment performance.

The IRDA has mandated that detailed illustrations should be provided with each policy to highlight customer benefits and returns. The Life Insurance Council has set that the rate of returns for these illustrations at 6% and 10% per annum. Please note that these returns are indicative returns to show a policyholder the impact of investments and charges over the term of the policy at these broad rates. The actual performance of the ULIP Fund will vary depending on the asset allocation and fund type selected by the policyholder e.g. bond / income funds may have lower but more steady returns over a longer period whilst an equity fund may have higher potential reward as well as risk, and higher volatility. It is important that a policyholder select the ULIP funds carefully based on their risk appetite and tolerance.

IRDA regulations have capped charges on Unit Linked Products i.e.  limiting the total charges that an insurer can deduct on a policy and limiting the surrender penalties for early withdrawal.

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Traditional plans are called thus as they refer to Life Insurance plans that were “traditionally” sold before the advent of the Unit Linked Plans. Collectively they refer to the term, endowment and money back plans.

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Endowment plans are life insurance plans that provide protection as well as some returns on the premiums paid by the policy holder. The endowment plan provides for payment of the sum assured on the death of the life insured, to the policy’s nominees or the next of kin of the insured. The premium is paid for the defined Sum Assured and term of the policy.

Part of the premium paid is adjusted towards the risk premium or mortality charge for the sum assured; and an amount adjusted for the insurers expenses. The Insurer will invest part of the premium for the policyholder. Investments by traditional plans are governed by the Investment Allocation guidelines of the Insurance Act, which mandates that most of the investment allocation is towards bonds and fixed income. Exposure to equities is limited to a maximum of 35 percent of the funds under management.

Variant to an endowment plan is a money back plan.

There are two types of endowment plans – with profit and without profit.

With Profit plans entitle the policyholder to share in the profits earned by the Insurer. Under Indian insurance regulations the with profit plans are entitled to 90 percent of the profits earned by the Insurer in it’s with profit pool.

There are two variants of with profit policies:
Reversionary Bonus Policies: The insurer will usually announce a bonus rate for the policy at the end of each year. This bonus rate is typically slightly lower than the actual return earned by the Insurer in an effort to smoothen the annual bonus payout during the term of the policy and mitigate any risk from a market downturn. Once declared, it is highly unusual for an Insurer to reduce the bonus declared – although this is possible and provided for in the event of extreme market movement.

Additionally, insurers can at their discretion announce a loyalty addition or a terminal bonus on the policies.

On maturity of the policy (if the life insured survives the policy term) the value of the policy will be paid to the policyholder. The value of the endowment policy is the premiums paid plus cumulative bonus paid by the insurer.

In the event of death of the life insured, the insurer will pay out the sum assured together with accumulated bonuses till date. Since the payout or returns are not guaranteed, these policies are cheaper than guaranteed addition policies.

Guaranteed Additions Policies: These are assured return policies where the insurer will declare at the outset the guaranteed additions to the policies, which is declared as a percentage of sum assured or a fixed amount per Rs 1,000 sum assured. The guaranteed additions will accumulate over the policy term and will be paid out at the time of maturity.

In the event of death of the life insured, the sum assured plus the guaranteed additions accumulated till date will be paid out to the nominees or next of kin.

Guaranteed additions policies are not popular with insurers these days to the higher risk associated with payment of guaranteed additions with investment under performance.

Without profit plans are endowments where the policyholder is not entitled to a share of the insurer’s profits. Therefore, these plans are available for a lower premium compared to with profit plans.

On maturity, the policyholder will receive the sum assured and accumulated loyalty additions as a return on investment. The loyalty addition is a percentage of sum assured paid to the policyholder for continuing with the plan through the term of the policy.

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Money back plans are variants to the endowments plans. The key difference is that in an endowment plan on maturity the sum assured and bonuses are paid to the policyholder on maturity; and in a money back plan the benefits are paid out periodically during the term of the policy.

The money back plan may provide for a part of the sum assured to be paid back at regular intervals during the term of the policy.

Any remaining sum assured, after paying the periodic money back payments, and accumulated bonuses are paid at the maturity of the policy.

In the event of death of the life insured, the full sum assured is paid to the nominee or next of kin. That is to say that the sum assured is not reduced by the amount paid during the term of the policy for the purposes of death benefit.

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Unit Linked Plans are insurance plans that are market linked and offer customers features combining protection with investments; as well as transparency and flexibility in terms of charges, fund options, etc. For details refer to Unit Linked Plans

Traditional plans are called thus as they refer to Life Insurance plans that were “traditionally” sold before the advent of the Unit Linked Plans. Collectively they refer to the term, endowment and money back plans.  For details refer to Term, Endowment and Money Back Plans

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Child Insurance Plans may be both unit linked or traditional plans. Child Plans are typically designed to provide both protection (on the life of the parent) and savings elements to assure that the child’s future requirements may be provided for.  These plans are usually for a period of 5-20 years, and often used by parents to accumulate an investment / saving for a future need, for example, the child’s education or marriage. The protection element of the plan provides the assurance that the funds (sum assured) will be available even in the event of the parent’s death.

Many child plans will have inbuilt or attached Riders that provide for additional benefits. For example a Waiver of Premium Rider.

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Pension Plans are retirement oriented plans that are structured to either help customers accumulate a corpus or fund for their retirement, or an annuity to provide regular income during the retired years.

Pension Plans allow for accumulation for retirement on a tax efficient basis under provisions of section 80CCC and 10(10)(d) of the Income Tax Act. (see Tax Benefits on Life Insurance).

During the accumulation phase of a Pension Plan, Insurance companies invest the pension contributions and manage the investment for a fee. The type of investment depends upon the type of product selected by the policyholder. Both traditional and unit linked pension plans are available.

Use our retirement calculator to see what funds you will need for your retirement to maintain your lifestyle. For retirement, it is advisable to start saving and accumulating for pensions early. This is because starting early can make a very significant difference to how much corpus you will have available on retirement.

Starting early makes your money work longer and the compounding of income can increase your wealth significantly on retirement. You can use our wealth calculator with two scenarios – 20 years to retirement and 30 years to retirement to see how much difference a delay can potentially make to your target corpus.

The end result of a Pension Plan is an Annuity – a sum of money to be paid to the Policyholder every year.

There are two types of Pensions annuities, depending upon the timing of when the annuity will start – a deferred annuity or an immediate annuity.

In an immediate annuity, the policyholder will make a lumpsum payment to buy an annuity which will start in the same year as the policy. The lumpsum amount could be the accumulated pension amount or the superannuation fund or any other sum accumulated e.g. provident fund balance, which the policyholder would like to use to set up a pension annuity. The policyholder will need to decide the periodicity of the annuity e.g. monthly or quarterly or yearly; and the number of years for which the annuity is required.

In a deferred annuity, the annuity payments are deferred for a future date (after a number of years) and the interval time is used for accumulating a pension fund. This is called the accumulation phase of the pension plan. During the accumulation phase, the policyholder will make investments which will grow together with the returns on the investments to provide a lump sum on the maturity of the plan.

In a Pension Plan at least 2/3rd of the accumulated pension amount has to be utilised to buy an annuity. The policyholder is free to withdraw 1/3rd of the accumulated pension amount on a tax free basis under current provisions of the Income Tax Act.

Some pension plans will also provide a life insurance cover during the accumulation phase i.e. with the deferred annuity so that the policyholders dependents are provided the pension in the event of death of the pension policyholder.

There are two types of Deferred Annuity Pension Plans:

Unit Linked Plans

Like mutual funds, Unit Linked Funds are free to set their own asset allocation and available across the risk-return spectrum including debt funds, balanced, equity funds and index funds. A policy holder thus has far greater control over where his premiums are invested.

The pension premiums paid by a policyholder are used to buy units in the Pension Fund selected by the policyholder. These units are bought at the prevailing NAV for the fund; and on maturity the fund value will be paid to the policyholder by encashing the accumulated units multiplied by the then prevailing NAV of the units.

Under revised IRDA regulations, all Unit Linked Pension Plans have to provide a minimum guarantee of 4.5% per annum. This guarantee will apply during the accumulation phase. This is likely to impact on availability of fund choices as insurers will seek to minimise exposure to market risks, and consequently it is likely that investor choice will be severely restricted in Unit Linked Pensions from September 2010.

All Unit Linked Plan also have to offer a compulsory life insurance cover or health insurance cover with the Pension Policy.

The accumulated pension can be used to buy a pension annuity under the terms and conditions as applicable for the annuity at that time. Policyholders are free to buy the annuity from any Insurer.

Traditional or Non Linked Pensions

In a traditional plan, the Insurer will provide a deferred annuity by accumulating the pension contributions in a Pension Fund. The policyholder will not have a choice of funds to invest in and the insurer will invest according to the guidelines set out by the IRDA for traditional pension funds.

The Insurer may provide an annual accumulation of premiums together with bonus or with guaranteed additions. These guaranteed additions may be for the term of the policy or declared annually at the beginning of the year.

Please refer to terms and conditions carefully for specifications of guarantees offered.

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Riders are typically additional benefits that you can ‘add-on’ to your basic life insurance policies for a small additional cost. Riders usually provide an additional cover or benefit associated with specific events or contingencies such as Accidental Death, Critical Illnesses, and Surgeries etc. The benefits associated with these riders could vary from an enhanced Sum Assured or risk cover to a Waiver of Premium in some cases.

Whether or not you need a specific rider is largely dependent on the need you are trying to fulfil and the cost of the rider. Different insurance companies have different terms and conditions for benefit payouts, inclusions and exclusions and it is important for you to review these to ensure you opt for the rider that best meets your requirements and is cost effective.

The needs of every individual vary – adding appropriate riders to your base insurance policies can ensure adequate coverage for you and your family at fairly affordable prices.

Category: Life Insurance

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Accidental Death Benefit Rider: This rider provides you with an additional cover in addition to the Sum Assured of your basic policy payable to your dependents / nominee in case of death due to an accident. Although restricted to death on account of an accident, this rider could be a very cost effective mechanism to make a significant enhancement to your risk cover at a low cost.

Category: Life Insurance

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Accidental Disability and/or Dismemberment Rider: You could insure against disabilities arising out of an accident by opting for this rider. In case of an accident resulting in total or partial disability/dismemberment during the term of your base policy, a Rider Sum Assured will be paid out to you while your base life insurance policy continues to provide you with a life cover. Though some companies offer a disability benefit only in case of permanent disability; there are riders that offer permanent and partial disability benefit in the event of an accident (with certain clauses that vary for every insurer). This can be an important risk cover to mitigate the financial hardships associated with a sudden and unforeseen accidental disability.

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Waiver of the Premium Rider: If a policy holder is under any circumstances unable to pay his premiums (falls seriously ill or dies), the policy still remains active. The time period of premium waiver might vary depending on various product terms and conditions. The premium on this rider is set in accordance with the premium being paid on the base policy and other riders, if any. This rider proves to be most beneficial in case the premium on the base policy is relatively high or in products such as Child Plans where the purpose of the policy is long term savings to secure your child’s future.

Category: Life Insurance

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Critical Illness Benefit Riders: This rider provides coverage against certain critical illnesses. Though the number and type of diseases covered under these riders are limited, yet the one’s covered, like cancer, coronary artery bypass, heart attack, kidney/renal failure, major organ transplant and paralytic stroke etc.; are those with fairly high associated medical treatment and hospitalization costs.

One of the attractive features under the critical illness benefit rider is that the policy holder gets an amount equal to the sum assured irrespective of the medical expenses on or after the diagnosis of the critical illness.

The critical illness rider is terminated once a critical illness is diagnosed. In some cases, the insurer will make a payment of sum assured for the critical illness rider with the main policy and terminate the underlying base policy. A plan that continues to give an insurance cover while charging a marginally higher premium, is always better than the one’s which terminate the base policy once a claim is made on the rider.

Category: Life Insurance

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Hospital Cash Benefit Rider: This rider provides coverage for payment of medical bills paid on hospitalisation, subject to conditions and exclusions in the policy. The insurer compensates the insured for a fixed amount for each day of hospitalisation, subject to a maximum sum assured under the rider. Unlike the critical illness rider, the hospital cash benefit rider is not terminated on a claim being made; and can continue subject to the annual limit of the sum assured.

Category: Life Insurance

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Level Term Cover Rider: This particular rider provides you the option to enhance your risk cover for a limited period up to a maximum sum equivalent to your base policy. It basically offers a death benefit only and helps the survivors to pay any unforeseen expenses or clear off all the liabilities of the policy holders. If you do not have adequate term insurance coverage and are in the process of buying a savings oriented or endowment plan, then you may want to consider this rider.

Category: Life Insurance

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Double Sum Assured Rider: In case of an ill-fated death of the policyholder, this rider provides for an additional equal amount corresponding to the basic sum assured. As compared to opting for a larger endowment policy, you could double your life cover at a nominal cost with this rider.

Category: Life Insurance

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Insurance policies are a promise for the insurer to pay a compensation “sum assured” to the nominees of the policy holder in the event of death of the life insured. However, the act of giving insurance is dependent on the Insurer who agrees to carry the risk in return for payment of a premium.

In some circumstances, an insurer may refuse to provide an insurance policy – for example due to medical reasons or due to a high risk occupation; or provide a policy subject to certain exclusions.

High risk occupations are those where the individuals, by the nature of their work, carry a risk of death. These could be armed service professions and professions or hobbies that have a high risk of death such as professional sky diving or mountaineering or motor racing.

Most Insurers do not cover the risk of death by suicide in the first year of the policy. In the event that a life insured commits suicide during the first year of the policy, an insurer can deny to pay the claim under the policy terms and conditions. This clause is designed to protect insurers from fraud.

Please check your policy terms and conditions for exclusions.

Category: Life Insurance

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The life insurance policyholder has a legal right to appoint a person or persons to receive the policy benefits in the event of death of the life insured. Any policyholder, who is a major and the life insured under a policy, can make a nomination.

A nominee is the person designated by the policyholder to receive the proceeds of an insurance policy, upon the death of the insured.

Category: Life Insurance

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Yes. A policyholder who is the life assured can change the nomination of the policy at any time till the maturity date. All insurance companies will have a designated form that will need completion and sent to the Insurer for notifying the change in nomination to be registered.

Category: Life Insurance

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Nomination is an authorisation to receive the policy benefits in the event of death of the life assured. A nomination does not give the nominee an absolute right over the money received to the exclusion of other legal heirs, who may continue to have a legal and valid claim over the money so received by the nominee.

Nomination can be revoked or cancelled at any time by the policyholder at his/her will or by a subsequent assignment.

On the other hand, Assignment of an insurance policy is a legally valid and enforceable transfer or assignment of all the rights in the insurance policy by the policyholder in favour of the assignee.

Category: Life Insurance

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Here are some key considerations that can help your dependents in the unfortunate event of having to make a life insurance claim:

  • At the time of buying insurance policies make sure that you provide all your details to the insurance company truthfully, especially your health related details. Any misinformation or misrepresentation can potentially lead to a rejection of the insurance claim defeating the very purpose for which you bought insurance.
  • Do also make sure that you pay your premiums regularly to keep the insurance policies active.
  • Since the prime objective of buying a life insurance policy is to provide financial protection for your dependents, do ensure that for all your life insurance policy contracts you have designated the person you wish to receive the claim proceeds as your nominee.
  • Policy Contract: One of the main requirements for filing a life insurance claim is the submission of the original policy contract with the life insurance company. Ensure that all your policy contracts are safely maintained and that your nominee is aware of which policies are active and where the policy contracts are being stored or maintained by you.
    • While keeping an updated list of your life insurance policies handy, you may also want to consider including your Car Insurance policy details. Your car insurance policy also covers you for a certain amount of Sum Assured (maximum Rs. 200,000) which can be claimed in the event of death on account of an accident involving the car that is insured.

While most insurance companies have their standard claims procedures and documentation requirements and one can get to know about these processes through the company’s websites and / or any of their customer service centres, here is a list of documentation that is usually required in addition to submission of the original policy contract:

  • Death Claim form: In the event of death of the insured during the term of a life insurance policy, the first step is to intimate the insurance company to which the policy pertains. Most companies have a ready format for such claim forms that can be obtained either from their nearest branch offices or from their websites.
  • Death Certificate: A copy of the death certificate as issued by a local authority
  • Nominee ID proof: A copy of the nominee’s identity proof that also establishes the nominee’s relationship with the life insured
  • Post mortem report / FIR and Police report: In case of an accidental death, additional documentation in the form of a post mortem report and a copy of the FIR and police report may also be required
  • Medical reports and hospitalisation records: In the event of death on account of a medical condition / illness / disease, the insurance company may require copies of all associated medical reports, test reports, hospitalisation records etc.

 

Buying an insurance policy is the first step towards securing your family’s future and providing them with financial protection. However, it is equally important to ensure that it is not too difficult for your dependents at the time of filing a claim. Do what is required to ensure that you have the right policy with no misrepresentations, it is active and premiums are paid regularly and that your dependents know where to start when it comes to filing a life insurance claim.

Category: Life Insurance

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A dictionary definition for an Ombudsman would be:

  • A man who investigates complaints and mediates fair settlements, especially between aggrieved parties such as consumers and an institution or organization.

The Institution of Insurance Ombudsman was created by the Government of India in 1998 to handle and address customer complaints and grievances related to Insurance. Insurance Ombudsmen are appointed by the Governing Body of Insurance Council.

Category: Life Insurance

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You could lodge a complaint that you may have against any insurer relating to:

i. any partial or total repudiation (rejection) of claims by the insurance companies,
ii. any dispute with regard to premium paid or payable in terms of the policy,
iii. any dispute on the legal construction of the policy wordings in case such dispute relates to claims;
iv. any delay in settlement of claims and
v. non-issuance of any insurance document to customers after receipt of premium.
The contract of insurance is for an amount not exceeding Rs. 20 lacs.

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You need to lodge your complaint in writing addressed to the Insurance Ombudsman of the region under which the office of the insurance company falls. For a list of Insurance Ombudsman in India and their contact details including telephone numbers and email Ids please see the attached link. (http://www.irdaindia.org/ombudsmen/ombudsmenlist_new.htm)

You may lodge a complaint with the Ombudsman if:

  • You have already lodged a complaint with the concerned Insurance Company and it has either rejected your complaint or you have received no reply on your complaint within one month of your complaint or even if you are not satisfied with the response or action taken by the insurance company in respect of your complaint
  • Your complaint to the Ombudsman is not more than one year later after the reply of the Insurance company
  • Your complaint is not pending with any court, consumer forum or arbitrator.

 

The award of the Ombudsman is binding on the insurance companies but not on the complainant who can choose to approach other bodies such as Consumer forums or Courts of Law.

 

A detailed note on the functioning of the Insurance Ombudsmen in India is available on the Insurance Regulatory and Development Authority of India (IRDA) website. (http://www.irdaindia.org/brief12aug2003.htm)

 

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Health Insurance (32)

Health Insurance protects you against rising healthcare costs and financial uncertainty associated with unforeseen hospitalisation due to accidents or illnesses. You can secure yourself and your family against unexpected financial emergencies by taking a health insurance policy for yourself and your family.

Major illnesses or accidents that require hospitalization can significantly deplete an individual’s finances. Costs for treatment of an illness requiring prolonged hospital care can sometimes be fairly expensive and due care should be taken while choosing the adequate amount of cover that you should insure for. Health Insurance is also important to those who do not have a guaranteed health cover as provided to government or armed forces employees. Group health insurance cover that may be provided by an Employer is subject to continued employment and the terms of the group cover – which may or may not be renewed in the future, or may not be provided post retirement.

With increasing age, need for healthcare typically increases – and many employer provided insurance covers may not provide the cover at the time.

It is important that provision for health insurance is done at an early age. Different health insurance policies have different rules for underwriting, covering pre-existing diseases, exclusions, and eligibility for certain types of charges covered or room type / room cost per day.

It is important that in taking a health insurance cover, proper research and comparison is done on the various products in order to decide which ones meet your requirements best. This is not only a function of price. Some plans will also offer hospital cash benefits to cover ‘other’ expenses when hospitalized or out-patient or dental expenses.

One can consider either an Individual Plan or a Family Floater which provides for cover for the family. A Family Floater can be cheaper than a combination of Individual plans, but limits the payments covered to the overall sum insured in a given year.

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A family floater policy covers all family members (Insured, his/her spouse and children) under one single policy. The Sum Insured floats over the entire Family and a consolidated premium needs to be paid. There is a limit on the no. of children that can be included and age before and beyond which they are not covered which varies from policy to policy. Parents of the insured are typically not included in a family floater policy.

An individual policy, on the other hand, provides health insurance coverage to only the individual for whom the insurance has been purchased.

While a family floater may turn out to be cheaper than taking 2 or more individual policies, the associated cover provided is at a family level. For e.g. if you take 2 Individual policies with a Rs. 200,000 Sum Assured each for yourself and your spouse, then both of you are covered for Rs. 200,000 each. However, if you take a family floater with a Rs. 200,000 Sum Assured then this limit applies to the two of you together.

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1. It is always better to start your coverage at an early age.
o With age the risk to our health only increases, consequently making insurance more expensive with age
o What is also an important consideration is that most companies are now providing guaranteed renewals for life once you are issued a health insurance policy and you are most likely to ‘get in’ when young
o Another key factor is the existence of an exclusion period (generally 2-4 years) for certain illnesses or medical conditions. One could, most likely, see through this exclusion period without any complications in the early part of one’s life and be covered for such conditions at a later stage

2. Make sure that you insure yourself and / or your family for an adequate amount of cover.
o While choosing this amount do take into account the costs associated with the treatments on conditions that you want to insure for as well as your premium paying capacity.
o Do not restrict your cover to the nominal amount that may be required to meet your tax exemption limits only
o You could always choose from between Individual Health Plans that provide cover for an individual or Family Floater policies that cover the entire family (usually restricted to self, spouse and children – parents are not covered under such plans). While a family floater may turn out to be cheaper than taking 2 or more individual policies, the associated cover provided is at a family level. For e.g. if you take 2 Individual policies with a Rs. 200,000 Sum Assured each for yourself and your spouse, then both of you are covered for Rs. 200,000 each. However, if you take a family floater with a Rs. 200,000 Sum Assured then this limit applies to the two of you together

3. While you will surely compare premiums associated with various products that you compare, make sure you consider some of these features as well:
o Cashless hospitalisation: a facility in which a person can get the required treatment while the medical expenses are settled by the insurance company directly with the hospital if the hospital comes under its network. You may, therefore, also want to compare the associated network of hospitals of each insurer.
o Cumulative Bonuses or Premium Discount: Some products carry incentives for ‘claim free’ years and offer either an increased Sum Assured for no extra cost or a reduced premium for your Sum Assured
o Exclusions: Do carefully review the exclusion list of each product. Needless to say, for the same amount of cost you would want to go for the product that has the least number of exclusions. Alternately, you may want to be covered for a specific medical condition which may actually be excluded in a given product.
o Maximum age of Renewal: This is the age to which the company would continue to provide you with health insurance on payment of premiums. You may want to go for a product with a higher maximum age of renewal.
o Other benefits: You may also want to compare certain other benefits such as Ambulance charges, coverage for day care procedures (for which hospitalization is not required) etc.

It is always important to carefully review the products’ benefits, terms and conditions and associated features – get complete information on available choices and compare before you buy. As we keep saying Health Insured is Wealth Protected.

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While you will surely compare premiums associated with various products that you compare, make sure you consider some of these features as well:

o Cashless hospitalisation: a facility in which a person can get the required treatment while the medical expenses are settled by the insurance company directly with the hospital if the hospital comes under its network. You may, therefore, also want to compare the associated network of hospitals of each insurer.
o No Claim Bonus or Discount: Some products carry incentives for ‘claim free’ years and offer either an increased Sum Assured for no extra cost or a reduced premium for your Sum Assured
o Exclusions: Do carefully review the exclusion list of each product. Needless to say, for the same amount of cost you would want to go for the product that has the least number of exclusions. Alternately, you may want to be covered for a specific medical condition which may actually be excluded in a given product.
o Maximum age of Renewal: This is the age to which the company would continue to provide you with health insurance on payment of premiums. You may want to go for a product with a higher maximum age of renewal.
Other benefits: You may also want to compare certain other benefits such as Ambulance charges, coverage for day care procedures (for which hospitalization is not required) etc.

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A Critical illness cover is generally available as a top-up or rider with your health insurance policy. As the name suggests, these plans cover you for certain specific critical illnesses that are pre-defined as being covered under the plan.

Under these plans, the insured is paid the Sum Assured as a lump sum amount within a few days of a critical illnesses being diagnosed.

Once this lump sum is paid, the plan ceases to exist. The differences between a Health Insurance policy and a Critical Illness plan are:
• Health Insurance plans cover costs related to hospitalisation on account of any medical condition or injury while Critical Illness plans cover only pre-specified illnesses
• Health Insurance plans continue their coverage till the time the Sum Assured is not exhausted by claims during a year. Critical Illness plans, on the other hand, pay up the Sum Assured and cease to exist as soon as a critical illness is diagnosed
The list of the critical illnesses covered varies from insurer to insurer and one should carefully review the coverage parameters before purchasing a policy.

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All pre-existing illnesses at the time of taking the policy are generally excluded from the health insurance cover. However, in some products pre-existing illnesses may be covered after a specified waiting period. What this means is that if you continue with an insurance product (i.e. keep renewing your policy) for the specified period then certain pre-existing illnesses may be covered on the completion of the waiting period. This waiting period varies by product and insurance company.

It is always important to carefully review the products’ benefits, terms and conditions and associated features – get complete information on available choices and compare before you buy.

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Documentation requirements at the time of purchasing a health insurance policy vary from company to company. However, most companies would require the following:
• Dully filled up proposal form of the insurance company.
• Medical examination report (this would depend on whether or not a medical examination is required for your age and the amount of cover you wish to purchase)
• Photograph of the person(s) to be insured.
• Photo ID proof of the proposer.
• Cheque issued by the proposer or Online Payment confirmation.

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A health insurance policy is generally issued for a period of 1 year, at the end of which you need to renew your policy. Some companies, however, also offer policies for a duration of 2 years. For some products, the renewal of the policy will be at the discretion of the insurance company and would depend on a review of health conditions and a possible medical examination.

However, in other cases, a renewal is guaranteed up to the maximum age of coverage under the product, as long as the required premium is paid. For e.g. if you purchase a health insurance policy at the age of 35 and the product provides a health cover up to a maximum age of 70, then you will be assured of a health insurance cover to age 70 years on payment of applicable premiums every year.

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The minimum and maximum ages for a health insurance product vary from company to company and are also product specific. While you will need to be at least 18 years of age to buy a health insurance policy for yourself, you could purchase insurance for your children starting almost at the time of birth in some products. You could insure your children through either an individual policy or cover them through family floater policy.

The maximum age for buying a health insurance is typically 60, but some products allow a person to buy an insurance cover upto Age 65.
The maximum age for renewal of an existing policy again depends product to product but most products provide a cover till the age of 70; with some covering till age 80.

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The minimum and maximum Sum Assured vary by product, insurance type and insurance company. However, one should keep various factors in mind when choosing the adequate amount of cover for yourself and your family.

Use our health insurance calculator to help you decide the amount of health insurance you may need.

While choosing this amount do take into account the costs associated with the treatments on conditions that you want to insure for as well as your premium paying capacity.

Do not restrict your cover to the nominal amount that may be required to meet your tax exemption limits only.

You could always choose from between Individual Health Plans that provide cover for an individual or Family Floater policies that cover the entire family (usually restricted to self, spouse and children – parents are not covered under such plans). While a family floater may turn out to be cheaper than taking 2 or more individual policies, the associated cover provided is at a family level. For e.g. if you take 2 Individual policies with a Rs. 200,000 Sum Assured each for yourself and your spouse, then both of you are covered for Rs. 200,000 each. However, if you take a family floater with a Rs. 200,000 Sum Assured then this limit applies to the two of you together

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Most health insurance policies have a waiting period of that may vary from 30-90 days, during which no claims are permissible. However this doesn’t include any accidental emergencies which are usually covered from day 1. The waiting period varies with product and company and is a feature that you should compare at the time of purchasing health insurance.

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Most products available in the market do not cover parents as part of the family floater policies. To cover your parents, you may need to purchase individual insurance plans.

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Your employer will cover your medical expenses only as long as you are in his services. Tomorrow, you may change your job, retire, or even start something on your own. In all such cases you and your family will be stranded if a medical emergency arises and you have not arranged for an alternative health insurance policy. It can act as a supplement to your existing medical cover in case the cost of medical treatment is higher than your existing cover level.

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Yes, you can buy more than one insurance policy. This may be done to get yourself covered for a larger amount or to avail oneself with benefits which were not covered in the previous policy. However, a claim for a single “event” can be made only once. In the event a claim for one “event” is made to multiple insurers, a proportional rule will apply and the Insurers will pay a part of the insurance claim each, such that the maximum payout will not exceed the maximum amount payable after applicable deductions and limits as stated in the Insurance policy.

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For the financial year 2017-18, Premiums upto Rs 25,000 on policies taken for for self, spouse and dependent children are eligible for tax deduction under Section 80D of the Income Tax Act.

An additional deduction of Rs 25,000 is allowed for premiums paid on health insurance policies purchased for parents. If any one of the persons specified is a senior citizen (Age 60 years and above) and health Insurance premium is paid for such senior citizen then the deduction amount is Rs. 30,000.

Please consult your tax advisor.

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Most health insurance companies provide the feature of ‘cashless facility’ with a select network of hospitals. This means that you can walk into any of the networked hospitals across the country and get treated (for diseases which fall under purview of cover) without having to pay for your bills first and then claiming it from insurance companies. The expenses are settled directly between the insurer and the hospital.

If you do not get admitted to a networked hospital due to some reasons, you will need to settle the hospitalization expenses and claim these from the insurance company subsequently.

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TPA is an abbreviation for Third Party Administrator. These companies assist the health insurance companies with their back end processing of claims and are responsible for coordinating all aspects of claims arising due to health insurance policies.

These companies are licensed by IRDA (Insurance Regulatory & Development Authority) and enter into agreements with health insurance companies to provide them with support on claims administration and management. When you purchase a health insurance policy, the insurance company will inform you of it TPA and provide you with its contact details. In the case of hospitalization and associated claims, you will need to contact the TPA who in turn will assist you with the settlement of your claims.

TPAs will be your point of contact in case of both emergency as well as planned medical procedures and will provide necessary authorization to hospitals for ‘cashless’ treatments or in other cases coordinate with you for the settlement of claims for expenses incurred by you.

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The insurance company ties up with a group of hospitals for cashless claim process, and these hospitals then become a part of its “network”. When you avail of a cashless treatment in any of these network hospitals, the company would settle the claim with the hospital directly. A complete list of network hospitals is generally made available on the insurance company website or as part of the insurance documentation received at the time of purchasing a health insurance policy.

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A health card or a cashless card is issued by most health insurance companies and carries the details of your insurance policy. It is similar to an Identity card that can be used to avail cashless hospitalisation facility at the network hospitals of your insurer. The card will provide contact details of your insurer and Third Party Administrator (TPA) for you to contact in the event a claim is required to be made.

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A typical health insurance policy will cover expenses related to:
• Room and boarding expenses in case of hospitalisation
• Diagnostic expenses
• Surgeon, Anesthetist, medical practitioner, Consultant and specialist fees
• Anesthesia, blood transfusion, Oxygen, Operation Theatre expense, cost of surgical appliances, medicine and drug related expenses
• Pre and post hospitalisation expenses subject to terms and conditions as applicable to the product

Please read the products terms and conditions including coverage and exclusions as these can vary from product to product

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There are various illnesses which are not covered in the policy (commonly known as ‘exclusions’). This is entirely dependent on the type of policy and the insurer. However, the following are almost always excluded:
• Expenses arising from HIV or AIDS and related diseases, use or misuse of liquor, intoxicating substances or drugs as well as intentional self injury
• War, riots, strike, nuclear weapon, induced treatment

It is important to review the exclusions clause of products at the time of comparing health insurance products or at the time of purchasing one to ensure that you know what would be available under your health plan.

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In all policies naturopathy is not covered. However Homeopathy is now being covered by some insurance companies, provided treatment is taken in a Homeopathic Hospital, which is empanelled with the insurance company.

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Traditionally Maternity / Pregnancy related expenses have not been allowed as expenses covered under Health Insurance plans and still feature as exclusions in most products. However, there are a few products that do cover maternity expenses subject to certain terms and conditions. These terms generally have a waiting period of anywhere between 4-6 years before maternity expenses being available under the insurance cover. This means that the maternity cover would only be available if you’ve had renewed your health insurance policy for the specified number of years stipulated as the waiting period. There is usually also a limit on the amount payable as claims under both normal and caesarean deliveries under these products.

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Health insurance policies do not cover hospital expenses incurred overseas. To cover yourself for any expenses that you may incur related to medical treatments or hospitalisation on account of an illness or accident while on a trip abroad, you need to have a Travel Insurance policy.

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While claims processes and documentation requirements vary from company to company, the following documents are typically required for filing a health insurance claim:
• Duly completed claim form
• Original bills, receipts and discharge certificate/ card from the hospital
• Original bills from chemists supported by proper prescription
• Receipt and investigation test reports from a pathologist supported by the note from attending Medical practitioner / surgeon prescribing the test.
• Nature of operation performed and surgeon’s bill and receipt.

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There is no limit on number of claims allowed during the year. The limit is on the overall Sum Assured or the insurance cover purchased with your health insurance policy. However, the coverage is reduced by the sum claimed by you with each claim. For e.g. if you have a health insurance policy with Rs. 5,00,000 as Sum Assured and you claim for expenses of Rs. 2,00,000, then the available cover for the remaining part of the year will be Rs. 3,00,000.

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Pre and post hospitalization means the medical expenses incurred during a period before & after hospitalisation for any disease / illness / injury sustained which is covered under your Policy. The period before and after hospitalization that is covered depends on the type of plan opted for. Generally, pre-hospitalisation expenses and post-hospitalization expenses are covered for a period of upto 30-60 days before hospitalization and upto 60-90 days after hospitalization respectively.

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When the condition of the patient is such that she/he cannot be moved to the hospital or when there is no bed available in any of the hospitals, the treatment is administered at the patient’s home. Importantly, the treatment is reimbursable under the health plan only if the treatment is comparable to that provided at a hospital or a nursing home. Generally, the duration of such treatment should be at least 3 days.

Usually, the limit of compensation is low and does not apply to certain diseases, such as asthma, bronchitis, diabetes, epilepsy, etc.

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Some products carry incentives (No Claims Bonus) for ‘claim free’ years and offer either an increased Sum Assured for no extra cost or a reduced premium for your Sum Assured.

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Most products do not allow an increase/decrease in the sum insured during the term of the policy; however at the time of renewal, you could adjust the Sum Assured according to your new requirements subject to the terms and conditions of the policy and your eligibility.

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You could lodge a complaint that you may have against any insurer relating to:

i. any partial or total repudiation (rejection) of claims by the insurance companies,
ii. any dispute with regard to premium paid or payable in terms of the policy,
iii. any dispute on the legal construction of the policy wordings in case such dispute relates to claims;
iv. any delay in settlement of claims and
v. non-issuance of any insurance document to customers after receipt of premium.
The contract of insurance is for an amount not exceeding Rs. 20 lacs.

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You need to lodge your complaint in writing addressed to the Insurance Ombudsman of the region under which the office of the insurance company falls. For a list of Insurance Ombudsman in India and their contact details including telephone numbers and email Ids please see the attached link. (http://www.irdaindia.org/ombudsmen/ombudsmenlist_new.htm)

You may lodge a complaint with the Ombudsman if:

  • You have already lodged a complaint with the concerned Insurance Company and it has either rejected your complaint or you have received no reply on your complaint within one month of your complaint or even if you are not satisfied with the response or action taken by the insurance company in respect of your complaint
  • Your complaint to the Ombudsman is not more than one year later after the reply of the Insurance company
  • Your complaint is not pending with any court, consumer forum or arbitrator.

 

The award of the Ombudsman is binding on the insurance companies but not on the complainant who can choose to approach other bodies such as Consumer forums or Courts of Law.

 

A detailed note on the functioning of the Insurance Ombudsmen in India is available on the Insurance Regulatory and Development Authority of India (IRDA) website. (http://www.irdaindia.org/brief12aug2003.htm)

 

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Motor Insurance (15)

Auto Insurance or Car Insurance provides you with a cover against loss or damage to your car on account of unforeseen risks such as fire, theft, floods, earthquakes, accidents etc. In addition, a car insurance policy also provides you with protection against death or injury of the insured and covers any third party liabilities that may arise out of injury or death of a third party or damage to third party vehicle/property.

There are two types of car insurance policies available in the market:

1. Third Party Insurance
It is legally mandatory to take a third party insurance cover in India. A vehicle is not supposed to be driven on Indian roads without a valid third party insurance cover. This policy will cover any costs associated with damage that you might cause to an individual or his/her car while driving your own vehicle. If you are involved in an accident with another car, then the insurance company will compensate for any damages to the other car and any medical expenses for individuals in that car.

2. Comprehensive Insurance
Comprehensive insurance provides you with not only Third party insurance but also covers you against ‘Own Damage’ i.e. it also covers damages to your own car and medical expenses for yourself and your car’s passengers subject to applicable terms and conditions. This policy will also cover against loss or damage to your car on account of other risks such as theft, burglary, fire, floods, earthquakes, terrorist activity etc.

While it is only the Third Party Insurance that is legally mandatory, a comprehensive policy provides you with wider protection against a higher number of risks and should be actively considered when purchasing car insurance.

Category: Motor Insurance

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Comprehensive insurance provides you with not only Third party insurance but also covers you against ‘Own Damage’ i.e. it also covers damages to your own car and medical expenses for yourself and your car’s passengers subject to applicable terms and conditions. This policy will also cover against loss or damage to your car on account of other risks

A typical comprehensive policy should cover your vehicle against:
1. Fire, explosion or lightning
2. Burglary or theft
3. Riot and strike
4. Earthquake (fire and shock damage)
5. Flood, Typhoon, Hurricane, Storm, Tempest, Inundation, Cyclone, Hailstorm etc.
6. Accidental external means
7. Malicious Act
8. Terrorist Activity
9. Whilst in transit by road, rail, inland waterway, lift, elevator or air
10. By landslide, rockslide.

Category: Motor Insurance

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Car Insurance policies usually do not cover the following:

• Normal wear and tear or ageing of the vehicle
• Depreciation, wear and tear of consumables like tubes and tyres
• Mechanical/electrical breakdown
• Damage that occur while a person is under the influence of drugs or liquor
• Damages that occur while a person is driving with invalid driving license
• Damage due to a war, civil war, mutiny, or nuclear risk
• Claims arising out of contractual liability

Use of vehicle other purposes than what it is meant for. For example, if a private car is being used as a taxi and gets involved in an accident, the owner will not be able to claim damages.

Category: Motor Insurance

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Add-ons are optional features that you can choose to include in your car insurance policy by paying an extra amount towards the premium. Including some or all of these features can help you get a wider coverage against additional risks.

• Additional personal accident cover for yourself or your passengers
• Additional covers for any accessories that you may have installed in your car such as a music system, air conditioner etc.
• Additional covers for any fitting such as a LPG/CNG kit that you may have installed in your car.

Category: Motor Insurance

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Yes, you can. For vehicles fitted with authorized bi-fuel system such as an additional CNG/LPG kit, an additional cover is available for an extra premium. You should specifically declare it in the insurance form.

Category: Motor Insurance

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Yes, there is an age limit for vehicles to be insured under the Comprehensive policy. Third Party insurance does not have a limitation related to the Age of the Vehicle to be insured. For Private cars, the age limit for the vehicle for comprehensive cover is 15 years.

Motorcycles and commercial vehicles over 10 years old are normally not considered for comprehensive cover.

Also, insurers maintain an inspection report from a surveyor certifying the condition of the vehicle which could be relied upon at the time of insuring your vehicle.

Category: Motor Insurance

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The base premium calculation for your car insurance depends on the following factors:

i. Insured’s Declared Value (IDV)- IDV is calculated on the basis of the manufacturer’s listed selling price of the vehicle after deducting the depreciation for every year as per the schedule provided by the Indian Motor Tariff. So in case of a new car, IDV will simply be its ex-showroom price while in case of an existing car for which you are renewing insurance, the IDV will be its ex-showroom price less depreciation as applicable to the age of the car. IDV is the maximum that the insurance company will pay in case of a complete loss of or damage to the vehicle. IDV is used only in the calculation of your premium for a comprehensive cover. In case of only a Third Party Insurance cover, IDV is not a determinant of your premium since the liability being covered is not associated with your car but damages to the third party or his/her vehicle.

ii. Geographical zone – India has been divided into 2 zones depending upon the location of the office of registration of the vehicle concerned:
• Zone A: Ahmadabad, Bangalore, Chennai, Hyderabad, Kolkata, Mumbai, New Delhi and Pune.
• Zone B: Rest of India
Premiums for your comprehensive car insurance also depend and vary by the zone in which your car is registered. Zone A cities have a higher premium as compared to Zone B

iii. The cubic capacity (cc) of the engine – Each car differs in respect of its engine size which is measured by its cubic capacity. The size of the engine is the only determinant for a Third Party Insurance cover. Premiums are higher for cars with higher engine sizes or cubic capacity. The classification for engines is done on the following basis:
• Not exceeding 1000 cc
• Exceeding 1000 cc but not exceeding 1500 cc
• Exceeding 1500 cc

iv. Age of vehicle- How old your car is also has an impact on your car insurance premium. With age, the depreciation factor being applied to determine the value of your car or its IDV increases. This results in the insurance cover amount reducing with age, thereby reducing the premium associated with your car insurance. In most cases, value of cars that are less than 5 years old are determined by applying standard depreciation rates as per the Indian Motor Tariff. For cars that are more than 5 years old, the insurance company will arrive at a value for your car taking into consideration not only the depreciation schedule but also the actual condition of your car.

These factors determine the base premium associated with your car insurance policy. You may choose to buy additional optional covers or avail of available discounts to arrive at your final car insurance premium.

Category: Motor Insurance

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Insurance companies have various clauses under which one can avail of premium discounts:

a. ‘No Claims’ discount/Bonus – if you haven’t claimed in a given year, you get the benefit of no claims discount in the form of a specific percentage reduction in your premium in the subsequent year. No claim bonuses increase with each claim free year and typically start with 20% and goes upto a maximum of 50%.

b. Voluntary Deductible discount – the insurer offers you a discount on your vehicle premium if you bear a certain amount of loss associated with each claim. Voluntary deductible is the amount that you agree to pay yourself towards a claim before the insurance company picks up the balance. The higher the voluntary deductible that you agree for, the lower your premiums.

c. Membership discount – If you are a member of a recognized Automobile Associations in India you are eligible to get a discount on your car insurance premium.

d. Anti-theft devices – If you have installed Anti-theft devices in your vehicle approved by ARAI (Automotive Research Association of India), you are eligible to get a discount of up to Rs. 500 on your premium.

e. Discount For physically challenged persons – a discount of as high as 50% is available on the Own Damage premium for physically challenged persons provided that the vehicle has been modified for use. The discount is also available for institutions exclusively engaged in the service of these people.

Vintage Cars – one can also get a discount if his/her car comes under the category of Vintage cars.

Category: Motor Insurance

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If you have made no claims in a particular year, the insurance company gives a discount in the premium for your car insurance in the subsequent year. This discount in premium is termed as No Claims Bonus. It can be viewed as an incentive provided for safe driving with the Insurers rewarding policyholders by providing a discount on the ‘Own Damage’ part of the premium. This discount increases with the number of no-claim years starting from 20% and going up to a maximum of 50%. No claim bonuses are transferable from one insurer to the other i.e. even if you switch your car insurance policy to a new insurer in a given year, you can be eligible for a No Claim bonus for any claim free years with your previous insurer.

Category: Motor Insurance

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A cover note is a temporary certificate that is issued by the Insurer before the issuance of the actual Insurance policy certificate. This note is valid for a period of 60 days from the date of issue of the cover note and serves as proof of insurance during this period. While most car insurance policies are now available for sale online with policy contracts being issued almost immediately, an offline purchase will typically result in a cover note being issued at the time of purchase followed by the policy contract subsequently.

Category: Motor Insurance

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Most of the leading insurance companies today have networked with a large no. of garages and service centers across the country. If you get your car repaired at any of these garages, you may not be required to pay for the repair charges as the insurance company will directly settle the claims.

Check with your Insurance Company on garages where cashless facility is available prior to getting any repair word done, and follow the procedure set out by the Insurer to ensure you can avail of the facility without problems.

Category: Motor Insurance

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Your insurance provides you with a cover throughout the country. In fact it is also valid in the SAARC countries (e.g. Bangladesh /Bhutan / Nepal / Sri Lanka /Pakistan / Maldives). So, it does not matter where the accident takes place. You just have to contact your insurance company and they shall guide you to the nearest network garage (if they provide cashless claims facility). Otherwise you get reimbursements once you file for a claim.

Category: Motor Insurance

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The documentation requirements at the time of filing a car insurance claim may vary from insurer to insurer but the following will most likely be required:

• Valid R.C. copy of the vehicle
• A copy of the Valid driving license of the person driving the vehicle at the time of the accident
• Repair bills
• A copy of the police FIR

Category: Motor Insurance

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You could lodge a complaint that you may have against any insurer relating to:

i. any partial or total repudiation (rejection) of claims by the insurance companies,
ii. any dispute with regard to premium paid or payable in terms of the policy,
iii. any dispute on the legal construction of the policy wordings in case such dispute relates to claims;
iv. any delay in settlement of claims and
v. non-issuance of any insurance document to customers after receipt of premium.
The contract of insurance is for an amount not exceeding Rs. 20 lacs.

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You need to lodge your complaint in writing addressed to the Insurance Ombudsman of the region under which the office of the insurance company falls. For a list of Insurance Ombudsman in India and their contact details including telephone numbers and email Ids please see the attached link. (http://www.irdaindia.org/ombudsmen/ombudsmenlist_new.htm)

You may lodge a complaint with the Ombudsman if:

  • You have already lodged a complaint with the concerned Insurance Company and it has either rejected your complaint or you have received no reply on your complaint within one month of your complaint or even if you are not satisfied with the response or action taken by the insurance company in respect of your complaint
  • Your complaint to the Ombudsman is not more than one year later after the reply of the Insurance company
  • Your complaint is not pending with any court, consumer forum or arbitrator.

 

The award of the Ombudsman is binding on the insurance companies but not on the complainant who can choose to approach other bodies such as Consumer forums or Courts of Law.

 

A detailed note on the functioning of the Insurance Ombudsmen in India is available on the Insurance Regulatory and Development Authority of India (IRDA) website. (http://www.irdaindia.org/brief12aug2003.htm)

 

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Travel Insurance (10)

Travel Insurance provides you financial protection against various risks associated with overseas travel including:

  • Any medical emergencies arising out of contracting an illness or meeting with an accident
  • Loss of baggage
  • Loss of passport / travel documents
  • Delay or cancellation of trip
  • Personal Accident
  • Personal Liability
  • Home Insurance while travelling abroad

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Carefully consider the features of the product as well as the Price.

Do bear in mind that products with features that you may not require at all will lead to you paying a higher premium for no extra benefit. On the other hand, restricting the benefits may reduce the premium but could turn out to be far costlier in case of occurrence of an event that is not covered.

While considering the product features and pricing for products available in the market, it would be worth your while to also compare the following:

  1. What is the deductible excess against each of these risk covers i.e. what is the amount that you as the insured will have to pay towards a claim before the insurance company picks up the rest.
  2. What are the specific exclusions under each risk category and the general exclusions for a given products.
  3. If you are a frequent traveller, you may want to compare prices for a multi-trip product that provides you ongoing cover for each of your overseas trips during a one year period. These products, however, usually restrict coverage for the duration of each trip during the year to a specific number of days.

While buying a travel insurance policy you should typically consider the following features:

  • Medical Expenses: This provides for the insurance company to bear the costs of any medical expenses that you may need to incur for any immediate medical assistance you require on account of any illness contracted or injury sustained whilst on a trip overseas. The amount that will be compensated is limited to the Sum Assured of this cover which in turn is something you can choose at the time of purchasing the policy. Needless to say, higher the Sum Assured, higher is the premium. One needs to keep in mind, though, that this cover is not available for any medical treatment arising out of pre-existing illnesses or any such treatment that can be deferred till your return back to India. When comparing this feature between products, you may want to consider the following:
  • If there are any sub-limits per illness within the Sum Assured. Some products may have such sub-limits to restrict what will be paid out per illness i.e. even if you take a Sum Assured of, say, USD 200,000 and the sub-limit per illness is only USD 100,000 then the maximum that will be paid out to you in case of contracting one illness would only be USD 100,000. Products with no such sub-limits or higher amounts associated with these sub-limits may be better options.
  • Some products may have separate limits above a certain age; you may want to consider and compare these limits vis-a-vis the associated premium being charged
  • Products that offer cashless hospitalisation will be better for an overseas trip as compared to any that may offer only reimbursements.
  • You may want to choose a product that also allows for a transportation cost back to India, if absolutely essential from a medical viewpoint.
  • Any and all exclusions under each of these plans
  1. Personal Accident: This cover provides for compensation in case of death or disability arising out of an accident whilst on a trip abroad. The amount that is paid out is again limited to the Sum Assured that you choose for this cover. Most companies have a table of benefits associated with this cover that provides details of the proportionate amount of Sum Assured that will be paid out depending upon the degree of disability. 
  2. Personal Liability: Under this benefit, the insurance company will cover any costs associated with a third party liability arising of an incident (during the policy duration and whilst on your trip overseas) that results in death, injury or damage to a third party person or to his/her property – limited to the Sum Assured associated with this benefit
  3. Loss/Delay of Baggage: You can purchase a cover against the risk of loss of baggage or even a delay of checked in baggage. The insurance company will compensate you for the market value of your checked in baggage in case of its complete and total loss subject to the Sum Assured limit. You may want to compare the limits associated with contents that require appropriate proof of ownership. In the case of a delay in transportation of checked in baggage, the insurance company will compensate you for your emergency purchase of clothing, toiletries and medication upto a maximum of the associated Sum Assured provided this delay is more than 12 hours from the actual arrival of your travel carrier (your airline or ship) and there is written proof of delay provided by such carrier.
  1. Loss of Passport / Travel Documents: This benefit will cover the costs associated with obtaining a new passport or related travel documents up to a maximum of the Sum Assured associated with this benefit subject to reasonable care having being taken to prevent such a loss.
  2. Trip Delay / Cancellation / Interruption: A coverage for this benefit ensures that the insurance company will compensate you for any trip cancellation, delays or interruptions caused due to numerous unforeseen reasons including but not limited to:
  • Unforeseen injury, illness or death of the insured or insured’s family member(s)
  • Cancellation of on account of weather conditions
  • A terrorist incident in the destination city listed on the insured’s itinerary within 30 days of the insured’s scheduled arrival; etc.
  • You may want to compare the circumstances under which the benefit is allowed and the specific exclusions of each product for this benefit coverage.
  1. Home Insurance: Most products now also provide you with a Home Insurance to cover for any loss that you may incur due to any damage to your house on account of fire and allied perils as well as a loss related to burglary whilst you are away on your trip. 
  2. Other benefits: You may also want to compare products depending upon availability of other benefits such as ‘Missed connections’, ‘Financial Emergency Assistance’, ‘Hijack distress allowance’, ‘Hospital Cash’ etc.

Always carefully consider the product terms and conditions.

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Single trip insurance covers you for a single return journey to a specified location. It is usually purchased with defined dates for start and end of a single trip and the policy terminates at the end date so specified unless extended. On the other hand, a multi-trip insurance is an annual policy that covers you for multiple trips abroad during a given year.

If you are a frequent traveller, you may want to compare prices and features for a multi-trip product that provides you ongoing cover for each of your overseas trips during a one year period. These products, however, usually restrict coverage for the duration of each trip during the year to a specific number of days.

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The availability of cashless facility in your Travel Insurance can vary depending on the insurer and product being purchased. In most cases, cashless facility will be available with a select group of network hospitals in a given country, details of which could be obtained from your insurer or its Third Party Administrator. However, cashless facility is typically available only in case of hospitalisation and for any Outpatient treatment, claims can only be through reimbursements.

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This allows for the insurance company to bear the costs of any medical expenses that you may need to incur for any immediate medical assistance you require on account of any illness contracted or injury sustained whilst on a trip overseas. The amount that will be compensated is limited to the Sum Assured of this cover which in turn is something you can choose at the time of purchasing the policy. Needless to say, higher the Sum Assured, higher is the premium. One needs to keep in mind, though, that this cover is not available for any medical treatment arising out of pre-existing illnesses or any such treatment that can be deferred till your return back to India.  When comparing this feature between products, you may want to consider the following:

 

  1. If there are any sub-limits per illness within the Sum Assured. Some products may have such sub-limits to restrict what will be paid out per illness i.e. even if you take a Sum Assured of, say, USD 200,000 and the sub-limit per illness is only USD 100,000 then the maximum that will be paid out to you in case of contracting one illness would only be USD 100,000. Products with no such sub-limits or higher amounts associated with these sub-limits may be better options.
  2. Some products may have separate limits above a certain age; you may want to consider and compare these limits vis-a-vis the associated premium being charged
  3. Products that offer cashless hospitalisation will be better for an overseas trip as compared to any that may offer only reimbursements.
  4. You may want to choose a product that also allows for a transportation cost back to India, if absolutely essential from a medical viewpoint.

Any and all exclusions under each of these plans

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A deductible or deductible excess under Travel Insurance is the amount that you as the insured need to pay yourself towards a claim before the insurance company picks up the rest. For e.g. if your travel insurance policy has a deductible of US$ 100 on medical expenses, and your medical expenses on account of a medical treatment while overseas are for US$ 2000, then you will need to pay US$ 100 yourself and the insurance company will settle the remaining US$ 1,900, subject to product terms and conditions.

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This cover provides for compensation in case of death or disability arising out of an accident whilst on a trip abroad. The amount that is paid out is again limited to the Sum Assured that you choose for this cover. Most companies have a table of benefits associated with this cover that provides details of the proportionate amount of Sum Assured that will be paid out depending upon the degree of disability.

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Under this benefit, the insurance company will cover any costs associated with a third party liability arising of an incident (during the policy duration and whilst on your trip overseas) that results in death, injury or damage to a third party person or to his/her property – limited to the Sum Assured associated with this benefit.

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You can purchase a cover against the risk of loss of baggage or even a delay of checked in baggage. The insurance company will compensate you for the market value of your checked in baggage in case of its complete and total loss subject to the Sum Assured limit. You may want to compare the limits associated with contents that require appropriate proof of ownership. In the case of a delay in transportation of checked in baggage, the insurance company will compensate you for your emergency purchase of clothing, toiletries and medication upto a maximum of the associated Sum Assured provided this delay is more than 12 hours from the actual arrival of your travel carrier (your airline or ship) and there is written proof of delay provided by such carrier.

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A coverage for this benefit ensures that the insurance company will compensate you for any trip cancellation, delays or interruptions caused due to numerous unforeseen reasons including but not limited to:

  1. Unforeseen injury, illness or death of the insured or insured’s family member(s)
  2. Cancellation of on account of weather conditions
  3. A terrorist incident in the destination city listed on the insured’s itinerary within 30 days of the insured’s scheduled arrival; etc.

You may want to compare the circumstances under which the benefit is allowed and the specific exclusions of each product for this benefit coverage.

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Home Insurance (21)

Home Insurance plans provide you with an insurance cover for both the structure of your house and its contents against fire and allied perils on account of:
• Natural calamities – such as fire, lightning, earthquake, landslide, rockslide, flood, inundation, storm, tempest, typhoon, hurricane, tornado, or cyclone
• Man-made calamities – such as domestic gas explosions, overflow and bursting of water tank or pipes, damage caused by aircrafts, riots, strikes, malicious or terrorist acts
Additionally, the contents of your house can also be insured against burglary and theft and in some cases mechanical failure or breakdown.

A few other risks can be covered as part of your home insurance depending on the availability of such features in the product you purchase and at an extra cost or premium. These risks could include:
• Terrorism cover
• Debris removal cost
• Costs incurred to comply with building regulations following damage
• Professional fees towards architects, surveyors, etc. for superintending a building during rebuilding
• Cost related to movement of contents of your home to a temporary residence
• Loss of rent (for landlord)
• Personal Accident Cover

If you are the owner of your house, you could purchase a home insurance policy to cover both the structure of the building as well as its contents. On the other hand, if you do not own the house you live in, you could still insure the contents and your belongings against risks of fire and allied peril, theft and mechanical breakdown as applicable and available.

Category: Home Insurance

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A home insurance policy provides you with protection against the risk of loss for your structure as well as its contents. A home and its contents are among the biggest investments one usually makes; and therefore a loss of a home due to a calamity or its contents can cause a major financial setback in addition to the hardship of not having a home.

These days many homes and major purchases are bought through loans and mortgages. A loss of home and its contents can cause additional burden if in addition to replacing the contents, one has to repay the loans outstanding as well. Insuring your home and its contents provides you with the certainty that your home can be replaced and your family protected.

Many Insurers today require that suitable home insurance is taken for any home that is purchased with a home mortgage or against which a loan has been taken.

Category: Home Insurance

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A home insurance policy is a very extensive product since it covers the house, its contents, its inhabitants and also their third party liability. The covers available can be divided under various sections or categories.
1. Fire & allied Perils – protects you against fire and its associated perils that might happen due to
o Natural calamities, such as fire, lightning, earthquake, landslide, rockslide, flood, inundation, storm, tempest, typhoon, hurricane, tornado, or cyclone.
o Man-made calamities, such as domestic gas explosions, overflow and bursting of water tank or pipes, damage caused by aircrafts, riots, strikes, malicious or terrorist acts.
2. Burglary & housebreaking – provides for damage to your house and the financial loss you suffered due to burglary. You can also get cover against damage caused by falling trees, electric poles or lampposts, collapsing aerials or satellite dishes, as well as damage caused by civic authorities while fighting fire.
3. Jewellery & valuables – cover against accident or misfortune anywhere in India for valuable items, such as jewelry, gold, silver, and other precious metal items, watches, clocks, photographic equipment, video cameras, telescopes, microscopes, music instruments, and sports equipment.
4. Plate glass – provides cover for breakage of fixed glass and sanitary fittings, including cost of frame, lettering, painting etc.
5. Breakdown of domestic appliances – Provides cover for damage to domestic appliances, such as refrigerators, washing machines, air-conditioners that might occur due to accidental electrical or mechanical breakdown.
6. Breakdown of electronic equipment – Provides cover for loss or damage to electronic equipment by accident or misfortune.
7. Pedal cycle – provides cover for loss or damage to your pedal cycle against accident (including fire and its allied perils), burglary, and third party legal liability for accidental injury, death, or property damage.
8. Baggage – provides cover for loss or damage to baggage belonging to you and your family due to accidents while travelling anywhere in India/world. However, it excludes money securities, gold and silver ornaments, travel tickets, cheques, share certificates, and consumable goods.
9. Personal Accident – protects you and your family members against accidents and violence, leading to bodily injury, disablement (permanent or temporary), or death. Some companies also provide for the educational expenses for a maximum of two dependent children
10. Public Liability Risk and Workmen’s Compensation Risk – Protects against liability to the general public and your employee for accidental death, bodily injury, or property damage.
11. Increased Living Expenses- covers expenses incurred due to damage to your home by fire and its allied perils, making it inhabitable.
Most of the insurance companies make it mandatory for one to purchase at least two to five sections of the householders’ insurance policy – along with the Fire and Allied Perils section being compulsory.

Category: Home Insurance

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The value of your house is assessed as per its ‘reinstatement value’ i.e. what it would cost to rebuild (reinstate) your house. This is calculated as the area of your house multiplied by the rate of construction per square feet, as on the date of purchasing the policy. E.g. if you have a 1,000 sq. ft. house, and the present construction rate per sq. ft. is Rs. 900/-, your house is valued at Rs. 9,00,000. Different insurance companies have different limits for construction rates in a given city and insurance cover would be provided up to a maximum of such limits.

Category: Home Insurance

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Contents are assessed on the ‘market value’ of the items. This means that if there were a loss, the claim would be paid on the value of purchasing a similar new item, less depreciation for the usage.

Category: Home Insurance

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No, most insurance companies don’t require a survey to assess the value of either your house or your belongings. They insure you in ‘good-faith’. However, at the time of claim you will need to substantiate ownership with applicable and appropriate proofs.

Category: Home Insurance

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A home insurance policy typically provides a cover for a period of 1 year after which one needs to renew it.

Category: Home Insurance

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In case you are living as a tenant, you still run the risk of losing your belongings in the unfortunate event of a fire or theft. Also the lives of your family members may come under risk. Therefore it’s advisable to take an insurance policy which covers your belongings and your family.

As a tenant you can only insure the contents that belong to you. An insurance policy for the structure is available only to home owners.

Category: Home Insurance

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This is very subjective and varies from insurer to insurer however; most insurers just need intimation from you about your new address before you shift.

Category: Home Insurance

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Any burglary of insured items taking place outside the insured premises is not covered under the householders’ insurance plan unless specifically mentioned in the policy. Things such as valuables, jewellery, baggage etc. may be covered under some conditions/circumstances or the coverage may be taken as an add-on at a premium. Please review the terms and conditions of your home insurance policy carefully at the time of purchase.

Category: Home Insurance

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Although there can be various inclusions depending on the kind of policy you go for but common exclusions include:
• Deliberate destruction of property
• Loss or damage caused by war, wear and tear, atmospheric conditions etc.
• Losses if home has been unoccupied for more than 30 days (but few insurer do provide cover)
• Loss of cash, bullion, painting, works of art, and antiques
• Loss to the structure and/or contents of home due to acts of terrorism. (can be covered as an add-on)

Category: Home Insurance

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Yes, a policy can be discontinued and a refund is payable by the insurance company. The refund amount is mostly calculated as per the Short Premium Rates, applicable to policies with terms shorter than a year.

Category: Home Insurance

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If the new owner of the house wants to continue the householders’ insurance cover, the insurance company issues an endorsement in the insured’s name and passes the policy on to the name of the new owner. Else, you can cancel the insurance and can get a refund. The refund amount is mostly calculated as per the Short Premium Rates, applicable to policies with terms shorter than a year.

Category: Home Insurance

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No, the age of your house has no impact on the premium of your householders’ insurance policy. However, beyond a particular age, some companies may refuse to insure your house. This time period often varies from company to company; a few companies refuse to insure houses that are more than 50 years old while other may have this limit at 25 years.

Category: Home Insurance

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Home insurance policy, as you might be aware, needs to be renewed each year. Therefore it’s your responsibly to adjust the amount of cover taking into consideration the inflation, the improvements/changes you make in your house. Also, most insurance companies have a maximum limit to the per sq feet price they are willing to cover so you can’t increase the sum insured beyond a limit which varies from insurer to insurer.

However, insurance companies do offer a cover against inflationary factors as an Additional risk cover, which might come at a proportionate hike in the premium. Therefore you must go through the insurance document carefully.

Category: Home Insurance

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The property can be insured even if it’s not in use presently. One can go for one of the two options depending on his/her requirements-
If the home is furnished, you can opt for a policy that covers both your house and its contents.

But, if the house is not furnished, you can opt for a Standard Fire and Special Perils policy only for the building. This policy will protect the structure of your building against loss due to fire / earthquakes etc. however, there are only few companies that provide this cover.

Category: Home Insurance

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No, a home insurance premium doesn’t enjoy tax benefits under the current income tax regulations. However, proceeds from a policy claim are exempted from tax. However, the lack of any tax incentives for buying home insurance should not be a deterrent as the advantages associated with a home insurance plan far exceed any tax related benefits.

Category: Home Insurance

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The process of filing a claim is not very difficult if you follow these simple steps-

• In case of burglary, inform the police immediately along with a list of items stolen and their approximate value.
• Inform the insurance company about the occurrence as soon as possible.
• Once you inform the insurance company, a surveyor will be sent to your house for an on-site inspection. Your cooperation would only make this process easy and less time consuming. Provide the necessary documents to substantiate your losses.
• You now need to submit a claim form at the insurance company.

The surveyor submits a report to the company after it is processed and approved; you receive your claim amount.

Category: Home Insurance

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You need to submit a ‘claims form’, duly filled and signed, along with a letter declaring your ownership on the contents and belongings.

Some other documents are also required which are considered as evidence of the event happening, the nature of the event and the extent of loss:
• First Information Report (FIR) from the police in case of burglary
• Fire brigade report in case of fire
• Seismological report in case of earthquake
• Meteorological department’s report in case of flood
• Estimate of the repairs
• Rent agreement
• Transport details in case of baggage loss

Category: Home Insurance

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You could lodge a complaint that you may have against any insurer relating to:

i. any partial or total repudiation (rejection) of claims by the insurance companies,
ii. any dispute with regard to premium paid or payable in terms of the policy,
iii. any dispute on the legal construction of the policy wordings in case such dispute relates to claims;
iv. any delay in settlement of claims and
v. non-issuance of any insurance document to customers after receipt of premium.
The contract of insurance is for an amount not exceeding Rs. 20 lacs.

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You need to lodge your complaint in writing addressed to the Insurance Ombudsman of the region under which the office of the insurance company falls. For a list of Insurance Ombudsman in India and their contact details including telephone numbers and email Ids please see the attached link. (http://www.irdaindia.org/ombudsmen/ombudsmenlist_new.htm)

You may lodge a complaint with the Ombudsman if:

  • You have already lodged a complaint with the concerned Insurance Company and it has either rejected your complaint or you have received no reply on your complaint within one month of your complaint or even if you are not satisfied with the response or action taken by the insurance company in respect of your complaint
  • Your complaint to the Ombudsman is not more than one year later after the reply of the Insurance company
  • Your complaint is not pending with any court, consumer forum or arbitrator.

 

The award of the Ombudsman is binding on the insurance companies but not on the complainant who can choose to approach other bodies such as Consumer forums or Courts of Law.

 

A detailed note on the functioning of the Insurance Ombudsmen in India is available on the Insurance Regulatory and Development Authority of India (IRDA) website. (http://www.irdaindia.org/brief12aug2003.htm)

 

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Loans and Cards (22)

A personal loan can be used for any personal use like wedding, education, holiday or purchasing consumer durables for any amount. Although the amount of loan offered and the period for which it can be offered varies from bank to bank, these limits are also dependent on an individual’s own capacity to pay repay the loan and make associated interest payments. The main advantage of personal loan is that it can be availed without security and collateral and are thus also called unsecured loans. Since these loans are unsecured in nature, the maximum amount that is available as a personal loan is limited and is usually a lot lower than any other forms of secured loans such as a Car Loan or Home Loan.

Category: Personal Loans

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  • No security or collateral required: Personal loans come without any requirement of providing any kind of security or collaterals, the only criterion for lending to an individual is the lender’s assessment of the integrity and ability of the borrower to repay.
  • Reasonable amounts available with simple documentation: The amount that one can borrow varies from a range of ` 10,000 to ` 50, 00,000 depending upon your repaying capacity and the limits set by the lending bank. The documentation for filing for this kind of a loan is far simpler and quicker as compared to other types of loans
  • No restriction on the end use of the loan amount: The most important feature of a personal loan is that the issuer of loan puts no restrictions on the purpose for which the amount has been borrowed, so it gives you a freedom to use the money for anything you want.

While the above features and flexibility make personal loans a fairly simple and easy option to borrow funds, one should be aware that these very features make personal loans more expensive than any secure loan such as car or home loans. But as long as your requirements are of a nature that do not allow you to go for a secured loan and you are sure of your ability to afford and service the loan, personal loans can help you meet your funding requirements fairly quickly and easily.

Category: Personal Loans

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Key considerations that one should keep in mind and evaluate when choosing which personal loan to opt for are:

  • Interest rates: One should consider the rate of interest various banks are charging on the amount borrowed. The interest rates will have an impact on the Equated Monthly Instalments (EMI) that you will need to pay towards repaying the loan and the associated interest rates. The easiest way to compare these loans would be to compare the EMI’s that you need to pay for a certain amount for a given tenure across banks.
  • Other charges: There are various other charges like bank charges, service charges, processing fee, etc, which are an equally important factors to be kept in mind and compared.
  • Tenure: The tenure for which a bank is lending you the money for can also be a consideration. If a bank is offering loans for only lower tenures, the EMIs might be higher than what you can pay. On the other hand, the lesser the tenure, the lower is the interest amount that you will be paying towards servicing the loan.
  • Turnaround time: The time taken by banks to process your loan. One should consider the urgency of the situation, evaluate various options given by different banks and then choose from where to borrow.

Pre-payment fee: Some loans have a penalty towards early prepayment of a loan. This is an important consideration since one may want to prepay a loan if your cash position becomes favourable and surplus money is available. Since the cost of personal loans are generally higher than other secured loans or rates available on fixed deposits etc., one should generally prepay these loans as soon as one is able. This is especially important if the residual period for the loan is long, say over 1-2 years.

Category: Personal Loans

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The lender levies some other charges than just the rate of interest which also add up into your overall cost of loan. These are as follows:

  • Processing Fee: This fee is charged by the banks to process the loan of the borrowers, which usually is 1-2 percent of the total amount borrowed and are mostly subject to a minimum flat amount.
  • Pre-payment Fee: Banks may also charge borrowers a fee if they repay the loan before the completion of the tenure of the loan. This fees can range anywhere between 2-5 percent of the amount being prepaid.
  • Late fee charge: When borrower fails to pay the EMI on time, the lender charges a penalty amount along with the EMI, which ranges usually between2-5 percent of the loan amount.

Documentation Charges: This fee is charged for the processing of the application for the loan and is around `500 to ` 1000.

Category: Personal Loans

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While documentation requirements may vary across banks, the following are generally required for processing a personal loan:

  • Identity Proof
  • 3-6 months Bank Statements
  • Residence proof
  • Salary slips / In case of self-employed banks requires balance sheets, profit & loss account, partnership deed & other mandatory documents etc.

Some banks may also insist on someone to act as a guarantor to the loan and may require documentation for such a person.

Category: Personal Loans

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The eligibility criteria may differ for every bank. The basic criterion will be an assessment of the borrowers repayment ability. Banks will usually determine this by asking for details of the borrowers income, expenses, assets and outstanding liabilities. A key consideration for banks is that the borrower should have a regular income source. The eligibility criteria usually also takes into account factors such as age, residence, loan amount, tenure of the loan, place of work, etc. Most of these criteria are also a way to determine the borrowers risk profile and ability to repay the loan.

Category: Personal Loans

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Personal loans are usually granted for a period of 2 to 5 years, though a few banks may offer tenures going up to 7 years.

Category: Personal Loans

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Personal Loans can be partnered with your spouse or your parents. This facility can be availed in case you want to opt for a higher amount as your eligibility criteria for a higher amount increases due to the income capacity of your co-applicant.

Category: Personal Loans

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Credit Information Bureau of India limited (CIBIL) maintains a history of India’s commercial and consumer borrowers. Lending Banks will usually check with CIBIL for a borrower’s credit history – a ‘Credit Information Report’ (CIR). CIBIL audits your records and grants points on a scale of 100 to 999 which are called your ‘CIBIL Score’. The bigger the number, the better it is for you, which implies that you have not made any defaults in your past credit payments and have not missed any EMIs and thus have a good credit record. The CIBIL Score impacts your loan application processing to a great extent. If you have a higher score, there are chances that the lender will not only process your application faster than usual, but also might provide you with a slightly better interest rate. And in some cases, the extra charges levied during the loan processing or even later, like processing fee, prepayment charges etc might be reduced or completely written off. But if you have a low CIBIL score, if your application is not rejected out-right, you might end up paying a higher rate of interest and the terms and conditions lay down for you might be more strict than usual. To know more about CIBIL and its processes click here.

Category: Personal Loans

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Home loan is a secured loan that is offered against a property to be bought / already bought which could be used for personal or commercial use. The bank gives the loan on condition of having rights over the property which acts as a security against the loan. In the event of failure to pay back the loan, the bank has the right to retrieve the money by selling the property. The term ‘Home Loans’ is used in a broader sense to include various types of loans related to house property and / or land purchases and improvements / extensions.

Category: Home Loans

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The general notion people have about home loans is that they are given out only to buy a property, which is not true. Home loans are available for:

  1. Buy New Property: Available to buy a new apartment or home.
  2. Home construction: When you want to construct a new house, you borrow money from the bank under home construction loan.
  • Land or Plot purchase: This kind of loan is sanctioned by the lenders in case you have to buy land either for construction of home or investment purpose.
  1. Home improvement and extension: Available when you already own a house and you just want to renovate it or repair it or to extend it like adding an extra room, expand any room, etc.
  2. Bridge loan: This loan helps you in the interim period when you are looking for a change in the house and you still have to find a buyer for your old house, when you already have found your new one.

Loan against Property: This loan can be used for any requirements of the home owner, against collateral of the property. The end use of the loan is not restricted and it works similar to a personal loan, except that it is secured against the property and therefore one can borrow larger amounts and at better rates than for personal loans.

Category: Home Loans

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What you can afford should be determined by your ability to service the re-payments of the liability you undertake with a home loan. This would be governed by the loan amount and the interest rate applicable on your home loan.

A typical benchmark that lenders use is also to not fund more than 75-85% of the value of the property; and a total loan amount not exceeding 3 times your annual income. Lenders will assess your total income and expenses and will fund a loan only where they can assess that your free savings are adequate to cover your EMI’s.

Taking a loan with a view of selling the house a few years down the line at a higher price to help you settle your liability may not always work, especially if the property prices start moving downwards or even if they remain static – as we have seen over the last couple of years the world over.

Co-application: What you can afford will also be reviewed by the Bank that is providing you the home loan. This would depend on your past and current financial position and ability to service the loan in the future i.e. ability to pay back the loan with applicable interest. In case you want a loan amount higher than what you are being offered as an individual, you may want to have your spouse or parents as co-applicants. This helps you increase the overall limit that the bank can offer since there is more than one person sharing the repayment of loan and the combined limit will obviously be higher. Needless to say, this can only work if the co-applicants have an independent source of income.

Having co-applicants can also make sense from a taxation perspective with each applicant being able to avail the tax benefit available on interest payment of an EMI.

Given the long term nature of a home loan liability, it also makes sense to protect yourself and your family from any unforeseen circumstances. A life insurance plan that covers the re-payment of loan in the event of an unfortunate death of the borrower can at least help the family retain their home.

Category: Home Loans

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Keeping in mind how much you can afford to pay each month, try and keep the duration of the loan as low as possible. With a lower duration of loan, the EMI may be higher but what you would pay as interest over the term of your loan would be substantially lower. If you can’t afford the higher EMI and have to necessarily take a higher duration loan, it would help to try and manage your savings in a way that help you pre-pay the loan with intermediate payments in the initial years itself so as to reduce your overall interest burden

Category: Home Loans

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Interest rate is one of the main criteria to chose as to which lender offers you the best deal for your home loan requirements. There are three kinds of interest rate methodologies available for you to choose from – Fixed Rate, Floating rate and Hybrid loans.
I. Fixed Rate: Under this system of rate of interest, a fixed rate of interest is charged for the duration of the loan. You may want to check the terms and conditions associated with a fixed rate product. At times, the fixed rate is applicable only for a limited number of years, which can defeat any assumptions of certainty that you may want to build into your financial planning.

II. Floating Rate: Floating rate of interest as the name suggests, is a system where the rate of interest is linked to a base rate or benchmark rate and can go up or down with changes in such base rates.

Hybrid Loans: This is a fairly recent model of loan repayment that has gained reasonable popularity. Under this system of repayment, the rate of interest charged during the initial few years of the loan is low, and gradually increases in line with changes in base or benchmark rates.

Category: Home Loans

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The various charges that are generally levied by banks in home loans are:

  1. Processing Fee– This charge is levied at the rate of 0.5 to 1 percent of the loan at the time of applying for the loan, with the documents submitted. Usually this charge is non-refundable, whether your loan is sanctioned or not.
  2. Administrative Fee- Some banks also charge a fee that is levied at the time when the lender issues you the disbursement letter.
  • Pre-payment penalty- When the borrower repays the loan before the stipulated time, most banks usually charge a penalty fee, which is almost 1 or 2 percent of the total amount being prepaid.
  1. Legal/ Technical Charges: This is a charge; some lenders might recover from you, for all legal or any other verification processes that your application goes through. This charge also depends upon the third party hired for the process.
  2. Duplicate Statements: The lender sends you a statement that has a detailed break up of the payments made and the outstanding amount against your loan. The lenders send you such statements once a year, which come in handy for your tax filing. Some banks might charge you a minimal fee for the issuance of a duplicate statement.

Delayed payment fee/ bounced cheque: Lenders charge you a fee for delayed fees or bounced cheques, which ranges between 2 to 3 percent of the EMI.

Category: Home Loans

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The choice on this one is not really easy. Fixed interest rate products are usually 1-3% higher than floating interest rate products but bring a certain level of certainty to your financial planning since you are more or less certain of your monthly outgo. On the other hand, floating interest rate products, though cheaper are linked to a base rate or benchmark rate and can go up or down with a change in the base rate.

It would, therefore make sense to go in for a fixed rate product only if you think the interest rates in the economy are bound to go up over the next few years. Even in this case, if the spread between the fixed and floating rates is fairly high, floating rate options continue to be better. For e.g. if the rate on fixed and floating rate products is 12.5% and 10% respectively, then as long as the increase in base rates is lower than 2.5%, floating rate products continue to be cheaper.

You may also want to check the terms and conditions associated with a fixed rate product. At times, the fixed rate is applicable only for a limited number of years, which may defeat the assumption of certainty that you may want to build into your financial planning.

Category: Home Loans

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Yes, most banks allow a change from floating rate to fixed rate at any point of time, without any extra fee being charged. However, in the case of a change from fixed rate to floating rate, the lender might charge you a small fee.

Category: Home Loans

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You are eligible for a home loan for a co-owned property, if it is co-owned by parents and a child, or a husband and a wife, as they are equally liable to repay the loan. If during the tenure of the loan re-payment, any dispute arises between you and you co-owner and you decide to settle apart, the individual liabilities still continue even if the income is not pooled in together.

Category: Home Loans

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Yes, it is definitely possible for you to get a loan for the property that has already been bought, but only if the property is not more than 6 months old. If the property has been bought more than 6 months ago, you can still get a loan which will be considered as a loan again property and the interest rate charged for this are higher than that of home loans.

Category: Home Loans

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For the documentation of home loans, the applicants are divided into two categories; Salaried and Self-Employed; the documents requirement generally being:

SALARIED:

  1. Photograph and application form
  2. Identity proof
  3. Residence proof
  4. Income Proof
    1. Form 16
    2. Latest salary slip
    3. 6month’s bank statements
  5. Processing fee cheque
  6. Land/building NOC

SELF-EMPLOYED/BUSINESSMEN:

  1. Photograph and application form
  2. Educational qualification certificates
  3. Identity proof
  4. Business profile with proof of its existence
  5. All business related certificates (registration, ownership, MOA, Board resolution, ISO etc.)
  6. Income Proof
    1. Last 3 years’ income statements and balance sheets
    2. Last 3 months’ bank statements (personal and business)
  7. Residence proof
  8. Processing fee cheque
Category: Home Loans

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One of the important features that you should consider in your home loan product is the availability of pre-payment facility. While some banks may not allow you to prepay your loans, others could be providing you the facility to prepay a certain percentage of your principal amount every year with or without a penalty charge. These charges are typically known as pre-payment or foreclosure charges and vary between 1-2% of the amount being prepaid. It would be worth your while to compare this feature across the product options you are evaluating since this flexibility can help you reduce your interest burden if you can manage to close your loan earlier.

Category: Home Loans

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Having taken a loan, you may at some stage be tempted to transfer your loan to another bank or lending institution which is offering you a lower interest rate than you currently have. While taking this decision do make sure that you factor in any foreclosure costs associated with your existing loans (charges linked with an early closure of your loan). The bank you are transferring your loan to may also be charging you a processing fees. Do take these costs into account and ensure that the savings you make on lower interest rate are higher than the costs associated with the loan transfer.

Category: Home Loans

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Home Loans (13)

Home loan is a secured loan that is offered against a property to be bought / already bought which could be used for personal or commercial use. The bank gives the loan on condition of having rights over the property which acts as a security against the loan. In the event of failure to pay back the loan, the bank has the right to retrieve the money by selling the property. The term ‘Home Loans’ is used in a broader sense to include various types of loans related to house property and / or land purchases and improvements / extensions.

Category: Home Loans

Leave a Reply

The general notion people have about home loans is that they are given out only to buy a property, which is not true. Home loans are available for:

  1. Buy New Property: Available to buy a new apartment or home.
  2. Home construction: When you want to construct a new house, you borrow money from the bank under home construction loan.
  • Land or Plot purchase: This kind of loan is sanctioned by the lenders in case you have to buy land either for construction of home or investment purpose.
  1. Home improvement and extension: Available when you already own a house and you just want to renovate it or repair it or to extend it like adding an extra room, expand any room, etc.
  2. Bridge loan: This loan helps you in the interim period when you are looking for a change in the house and you still have to find a buyer for your old house, when you already have found your new one.

Loan against Property: This loan can be used for any requirements of the home owner, against collateral of the property. The end use of the loan is not restricted and it works similar to a personal loan, except that it is secured against the property and therefore one can borrow larger amounts and at better rates than for personal loans.

Category: Home Loans

Leave a Reply

What you can afford should be determined by your ability to service the re-payments of the liability you undertake with a home loan. This would be governed by the loan amount and the interest rate applicable on your home loan.

A typical benchmark that lenders use is also to not fund more than 75-85% of the value of the property; and a total loan amount not exceeding 3 times your annual income. Lenders will assess your total income and expenses and will fund a loan only where they can assess that your free savings are adequate to cover your EMI’s.

Taking a loan with a view of selling the house a few years down the line at a higher price to help you settle your liability may not always work, especially if the property prices start moving downwards or even if they remain static – as we have seen over the last couple of years the world over.

Co-application: What you can afford will also be reviewed by the Bank that is providing you the home loan. This would depend on your past and current financial position and ability to service the loan in the future i.e. ability to pay back the loan with applicable interest. In case you want a loan amount higher than what you are being offered as an individual, you may want to have your spouse or parents as co-applicants. This helps you increase the overall limit that the bank can offer since there is more than one person sharing the repayment of loan and the combined limit will obviously be higher. Needless to say, this can only work if the co-applicants have an independent source of income.

Having co-applicants can also make sense from a taxation perspective with each applicant being able to avail the tax benefit available on interest payment of an EMI.

Given the long term nature of a home loan liability, it also makes sense to protect yourself and your family from any unforeseen circumstances. A life insurance plan that covers the re-payment of loan in the event of an unfortunate death of the borrower can at least help the family retain their home.

Category: Home Loans

Leave a Reply

Keeping in mind how much you can afford to pay each month, try and keep the duration of the loan as low as possible. With a lower duration of loan, the EMI may be higher but what you would pay as interest over the term of your loan would be substantially lower. If you can’t afford the higher EMI and have to necessarily take a higher duration loan, it would help to try and manage your savings in a way that help you pre-pay the loan with intermediate payments in the initial years itself so as to reduce your overall interest burden

Category: Home Loans

Leave a Reply

Interest rate is one of the main criteria to chose as to which lender offers you the best deal for your home loan requirements. There are three kinds of interest rate methodologies available for you to choose from – Fixed Rate, Floating rate and Hybrid loans.
I. Fixed Rate: Under this system of rate of interest, a fixed rate of interest is charged for the duration of the loan. You may want to check the terms and conditions associated with a fixed rate product. At times, the fixed rate is applicable only for a limited number of years, which can defeat any assumptions of certainty that you may want to build into your financial planning.

II. Floating Rate: Floating rate of interest as the name suggests, is a system where the rate of interest is linked to a base rate or benchmark rate and can go up or down with changes in such base rates.

Hybrid Loans: This is a fairly recent model of loan repayment that has gained reasonable popularity. Under this system of repayment, the rate of interest charged during the initial few years of the loan is low, and gradually increases in line with changes in base or benchmark rates.

Category: Home Loans

Leave a Reply

The various charges that are generally levied by banks in home loans are:

  1. Processing Fee– This charge is levied at the rate of 0.5 to 1 percent of the loan at the time of applying for the loan, with the documents submitted. Usually this charge is non-refundable, whether your loan is sanctioned or not.
  2. Administrative Fee- Some banks also charge a fee that is levied at the time when the lender issues you the disbursement letter.
  • Pre-payment penalty- When the borrower repays the loan before the stipulated time, most banks usually charge a penalty fee, which is almost 1 or 2 percent of the total amount being prepaid.
  1. Legal/ Technical Charges: This is a charge; some lenders might recover from you, for all legal or any other verification processes that your application goes through. This charge also depends upon the third party hired for the process.
  2. Duplicate Statements: The lender sends you a statement that has a detailed break up of the payments made and the outstanding amount against your loan. The lenders send you such statements once a year, which come in handy for your tax filing. Some banks might charge you a minimal fee for the issuance of a duplicate statement.

Delayed payment fee/ bounced cheque: Lenders charge you a fee for delayed fees or bounced cheques, which ranges between 2 to 3 percent of the EMI.

Category: Home Loans

Leave a Reply

The choice on this one is not really easy. Fixed interest rate products are usually 1-3% higher than floating interest rate products but bring a certain level of certainty to your financial planning since you are more or less certain of your monthly outgo. On the other hand, floating interest rate products, though cheaper are linked to a base rate or benchmark rate and can go up or down with a change in the base rate.

It would, therefore make sense to go in for a fixed rate product only if you think the interest rates in the economy are bound to go up over the next few years. Even in this case, if the spread between the fixed and floating rates is fairly high, floating rate options continue to be better. For e.g. if the rate on fixed and floating rate products is 12.5% and 10% respectively, then as long as the increase in base rates is lower than 2.5%, floating rate products continue to be cheaper.

You may also want to check the terms and conditions associated with a fixed rate product. At times, the fixed rate is applicable only for a limited number of years, which may defeat the assumption of certainty that you may want to build into your financial planning.

Category: Home Loans

Leave a Reply

Yes, most banks allow a change from floating rate to fixed rate at any point of time, without any extra fee being charged. However, in the case of a change from fixed rate to floating rate, the lender might charge you a small fee.

Category: Home Loans

Leave a Reply

You are eligible for a home loan for a co-owned property, if it is co-owned by parents and a child, or a husband and a wife, as they are equally liable to repay the loan. If during the tenure of the loan re-payment, any dispute arises between you and you co-owner and you decide to settle apart, the individual liabilities still continue even if the income is not pooled in together.

Category: Home Loans

Leave a Reply

Yes, it is definitely possible for you to get a loan for the property that has already been bought, but only if the property is not more than 6 months old. If the property has been bought more than 6 months ago, you can still get a loan which will be considered as a loan again property and the interest rate charged for this are higher than that of home loans.

Category: Home Loans

Leave a Reply

For the documentation of home loans, the applicants are divided into two categories; Salaried and Self-Employed; the documents requirement generally being:

SALARIED:

  1. Photograph and application form
  2. Identity proof
  3. Residence proof
  4. Income Proof
    1. Form 16
    2. Latest salary slip
    3. 6month’s bank statements
  5. Processing fee cheque
  6. Land/building NOC

SELF-EMPLOYED/BUSINESSMEN:

  1. Photograph and application form
  2. Educational qualification certificates
  3. Identity proof
  4. Business profile with proof of its existence
  5. All business related certificates (registration, ownership, MOA, Board resolution, ISO etc.)
  6. Income Proof
    1. Last 3 years’ income statements and balance sheets
    2. Last 3 months’ bank statements (personal and business)
  7. Residence proof
  8. Processing fee cheque
Category: Home Loans

Leave a Reply

One of the important features that you should consider in your home loan product is the availability of pre-payment facility. While some banks may not allow you to prepay your loans, others could be providing you the facility to prepay a certain percentage of your principal amount every year with or without a penalty charge. These charges are typically known as pre-payment or foreclosure charges and vary between 1-2% of the amount being prepaid. It would be worth your while to compare this feature across the product options you are evaluating since this flexibility can help you reduce your interest burden if you can manage to close your loan earlier.

Category: Home Loans

Leave a Reply

Having taken a loan, you may at some stage be tempted to transfer your loan to another bank or lending institution which is offering you a lower interest rate than you currently have. While taking this decision do make sure that you factor in any foreclosure costs associated with your existing loans (charges linked with an early closure of your loan). The bank you are transferring your loan to may also be charging you a processing fees. Do take these costs into account and ensure that the savings you make on lower interest rate are higher than the costs associated with the loan transfer.

Category: Home Loans

Leave a Reply

Personal Loans (9)

A personal loan can be used for any personal use like wedding, education, holiday or purchasing consumer durables for any amount. Although the amount of loan offered and the period for which it can be offered varies from bank to bank, these limits are also dependent on an individual’s own capacity to pay repay the loan and make associated interest payments. The main advantage of personal loan is that it can be availed without security and collateral and are thus also called unsecured loans. Since these loans are unsecured in nature, the maximum amount that is available as a personal loan is limited and is usually a lot lower than any other forms of secured loans such as a Car Loan or Home Loan.

Category: Personal Loans

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  • No security or collateral required: Personal loans come without any requirement of providing any kind of security or collaterals, the only criterion for lending to an individual is the lender’s assessment of the integrity and ability of the borrower to repay.
  • Reasonable amounts available with simple documentation: The amount that one can borrow varies from a range of ` 10,000 to ` 50, 00,000 depending upon your repaying capacity and the limits set by the lending bank. The documentation for filing for this kind of a loan is far simpler and quicker as compared to other types of loans
  • No restriction on the end use of the loan amount: The most important feature of a personal loan is that the issuer of loan puts no restrictions on the purpose for which the amount has been borrowed, so it gives you a freedom to use the money for anything you want.

While the above features and flexibility make personal loans a fairly simple and easy option to borrow funds, one should be aware that these very features make personal loans more expensive than any secure loan such as car or home loans. But as long as your requirements are of a nature that do not allow you to go for a secured loan and you are sure of your ability to afford and service the loan, personal loans can help you meet your funding requirements fairly quickly and easily.

Category: Personal Loans

Leave a Reply

Key considerations that one should keep in mind and evaluate when choosing which personal loan to opt for are:

  • Interest rates: One should consider the rate of interest various banks are charging on the amount borrowed. The interest rates will have an impact on the Equated Monthly Instalments (EMI) that you will need to pay towards repaying the loan and the associated interest rates. The easiest way to compare these loans would be to compare the EMI’s that you need to pay for a certain amount for a given tenure across banks.
  • Other charges: There are various other charges like bank charges, service charges, processing fee, etc, which are an equally important factors to be kept in mind and compared.
  • Tenure: The tenure for which a bank is lending you the money for can also be a consideration. If a bank is offering loans for only lower tenures, the EMIs might be higher than what you can pay. On the other hand, the lesser the tenure, the lower is the interest amount that you will be paying towards servicing the loan.
  • Turnaround time: The time taken by banks to process your loan. One should consider the urgency of the situation, evaluate various options given by different banks and then choose from where to borrow.

Pre-payment fee: Some loans have a penalty towards early prepayment of a loan. This is an important consideration since one may want to prepay a loan if your cash position becomes favourable and surplus money is available. Since the cost of personal loans are generally higher than other secured loans or rates available on fixed deposits etc., one should generally prepay these loans as soon as one is able. This is especially important if the residual period for the loan is long, say over 1-2 years.

Category: Personal Loans

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The lender levies some other charges than just the rate of interest which also add up into your overall cost of loan. These are as follows:

  • Processing Fee: This fee is charged by the banks to process the loan of the borrowers, which usually is 1-2 percent of the total amount borrowed and are mostly subject to a minimum flat amount.
  • Pre-payment Fee: Banks may also charge borrowers a fee if they repay the loan before the completion of the tenure of the loan. This fees can range anywhere between 2-5 percent of the amount being prepaid.
  • Late fee charge: When borrower fails to pay the EMI on time, the lender charges a penalty amount along with the EMI, which ranges usually between2-5 percent of the loan amount.

Documentation Charges: This fee is charged for the processing of the application for the loan and is around `500 to ` 1000.

Category: Personal Loans

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While documentation requirements may vary across banks, the following are generally required for processing a personal loan:

  • Identity Proof
  • 3-6 months Bank Statements
  • Residence proof
  • Salary slips / In case of self-employed banks requires balance sheets, profit & loss account, partnership deed & other mandatory documents etc.

Some banks may also insist on someone to act as a guarantor to the loan and may require documentation for such a person.

Category: Personal Loans

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The eligibility criteria may differ for every bank. The basic criterion will be an assessment of the borrowers repayment ability. Banks will usually determine this by asking for details of the borrowers income, expenses, assets and outstanding liabilities. A key consideration for banks is that the borrower should have a regular income source. The eligibility criteria usually also takes into account factors such as age, residence, loan amount, tenure of the loan, place of work, etc. Most of these criteria are also a way to determine the borrowers risk profile and ability to repay the loan.

Category: Personal Loans

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Personal loans are usually granted for a period of 2 to 5 years, though a few banks may offer tenures going up to 7 years.

Category: Personal Loans

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Personal Loans can be partnered with your spouse or your parents. This facility can be availed in case you want to opt for a higher amount as your eligibility criteria for a higher amount increases due to the income capacity of your co-applicant.

Category: Personal Loans

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Credit Information Bureau of India limited (CIBIL) maintains a history of India’s commercial and consumer borrowers. Lending Banks will usually check with CIBIL for a borrower’s credit history – a ‘Credit Information Report’ (CIR). CIBIL audits your records and grants points on a scale of 100 to 999 which are called your ‘CIBIL Score’. The bigger the number, the better it is for you, which implies that you have not made any defaults in your past credit payments and have not missed any EMIs and thus have a good credit record. The CIBIL Score impacts your loan application processing to a great extent. If you have a higher score, there are chances that the lender will not only process your application faster than usual, but also might provide you with a slightly better interest rate. And in some cases, the extra charges levied during the loan processing or even later, like processing fee, prepayment charges etc might be reduced or completely written off. But if you have a low CIBIL score, if your application is not rejected out-right, you might end up paying a higher rate of interest and the terms and conditions lay down for you might be more strict than usual. To know more about CIBIL and its processes click here.

Category: Personal Loans

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Savings (2)

Fixed deposits are also called term deposits. These accounts are fixed in terms of tenure, interest rates and the amount of deposits. These deposits are the most suited for people who have a low risk appetite and want their money to be invested in fairly risk free instruments for a defined period of time. Typically, the higher the tenure of your deposit, the higher is the interest rate offered by banks. Most banks also offer an additional benefit in terms of a higher interest rate to senior citizens (age greater than 60 years).

Category: Deposits

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Fixed deposits are available across a wide range of durations. The minimum duration that is offered by any bank in the market today is 7 days and the highest typically goes up to 10 years.

Category: Deposits

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Deposits (2)

Fixed deposits are also called term deposits. These accounts are fixed in terms of tenure, interest rates and the amount of deposits. These deposits are the most suited for people who have a low risk appetite and want their money to be invested in fairly risk free instruments for a defined period of time. Typically, the higher the tenure of your deposit, the higher is the interest rate offered by banks. Most banks also offer an additional benefit in terms of a higher interest rate to senior citizens (age greater than 60 years).

Category: Deposits

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Fixed deposits are available across a wide range of durations. The minimum duration that is offered by any bank in the market today is 7 days and the highest typically goes up to 10 years.

Category: Deposits

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